15 November 2024
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In summary:
Germany: what’s next?
Snap elections are set for 23 February 2025 but Germany urgently needs greater stability and reduced uncertainty to ward off economic stagnation. The upcoming elections and the threat of a trade war with an increasingly protectionist US could halve projected GDP growth in 2025 to just +0.4%. While a CDU-led grand coalition is currently expected by mid-2025, it will face similar challenges as its predecessors. The next German government must implement substantial structural reforms to improve economic prospects and tackle low productivity, employing a combined strategy of increased spending alongside competitiveness-focused reforms, although significant fiscal loosening seems unlikely even after the elections. To address pressing budget gaps and invest in the green transformation, infrastructure and innovation, Germany needs a comprehensive Agenda 2030 that unites political and industrial stakeholders. Additionally, demographic reforms and tax changes are essential for boosting competitiveness. In an increasingly fragmented world, Germany needs to transform its economic model, embracing more European solutions.
China’s fiscal stimulus that wasn’t.
China finally announced its long-awaited fiscal package (RMB10trn over five years), which raises the local government debt ceiling by RMB2trn per year over 2024-2026 and allocates RMB800bn per year over five years out of the annual local government special bond issuance quotas. Bullish bets are unwinding as markets were disappointed by the lack of measures to boost short-term growth. We think the plan is sensible, aimed at reducing the structural risks of a fiscal/financial crisis, but for markets to regain confidence, the government will need to send clearer signals and take bolder steps to revitalize the economy, including a stronger focus on consumption. We continue to expect GDP growth at +4.6% in 2025 and +4.2%, in 2026. Looking ahead, more policies could still be announced by next spring – but consumers should not hold their breath.
Brazil is burning: The interplay of climate change and deforestation, and the path forward for forest resilience.
With COP29 underway in Baku, Azerbaijan, the pressure is mounting to meet global climate commitments on time. Many observers were worried about the low expectations for this COP and anticipating a much better vintage with COP30 in Brazil. But this is for another reason that Brazil is on everyone’s mind this week: it is facing one of the worst years on record for wildfires, with nearly 40mn hectares of land burned, which is significantly higher than the 30mn hectare annual average of the last decade. Rising temperatures (+1.2°C in 2019 compared to the 1950–1979 average) and three decades of persistent droughts have accelerated the spread of fires. Additionally, deforestation driven by agricultural expansion, particularly soybean cultivation, has further exacerbated the crisis. Between 2013 and 2020 alone, soybean-related deforestation reached 5.17mn hectares, highlighting the urgent need for sustainable land-use policies and climate adaptation measures to mitigate wildfire risks and protect Brazil’s ecosystems.
Authors
Françoise Huang
Allianz Trade
Allianz Trade
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