Economy

Each of these factors contributes to the broader economic landscape, necessitating attention from policymakers.Weak household consumption remains a central concern for the German economy. High inflation and rising living costs have significantly impacted household purchasing power, leading to reduced consumer confidence. As households tighten their budgets, the overall consumption levels decline, which further stifles economic growth. Investing.com — This environment not only affects retail and service sectors but also dampens investment sentiment, creating a cycle that limits recovery.In addition, Germany’s export performance has weakened relative to the global demand landscape. While the country has historically been a dominant player in international trade, recent data indicates a lag in its export growth compared to other nations. Factors such as supply chain disruptions, rising production costs, and shifting consumer preferences have contributed to this decline. As competitor countries capitalize on new opportunities, Germany must address its export strategies to remain competitive in a rapidly changing global market.Lastly, the issue of low potential growth looms large over Germany’s economic horizon. Structural obstacles, including an aging population and insufficient workforce growth, have hindered productivity advancements. This stagnation in potential growth limits the economy’s capacity to expand and innovate, ultimately impacting long-term sustainability. Without reforms to enhance productivity and attract talent, Germany risks falling behind its peers in Europe and the global economy. More

While historically common (1960s) and adopted by some nations (e.g., Poland), Germany’s current economic situation presents obstacles.Germany’s sluggish economic growth is a key obstacle. The country is projected to grow at an average rate of just 0.5% annually in the coming years, far below the levels required to accommodate a substantial increase in defense expenditure without impacting other sectors. Historically, faster economic growth allowed Germany and other nations to manage high defense spending more effectively, as rising GDP inherently increases government revenue. Without accelerating economic growth, Germany would need two decades to gradually increase defense spending to 4% of GDP, a timeline that is politically and strategically impractical, Commerzbank added.Reducing spending in other areas of the federal budget offers a partial solution, but the scope for such savings is limited. To close the gap through budgetary cuts alone, Germany would need to reduce federal civilian spending by nearly 20% over four years. Potential savings from social spending cuts and government efficiency improvements would be insufficient to fully fund increased defense spending. While reallocating funds from climate initiatives, such as through more efficient carbon pricing, could generate savings, this would likely face significant political opposition.Financing the defense increase through debt is another option, but it raises legal and economic concerns. Such an approach would nearly double Germany’s budget deficit from 2% to 4% of GDP, violating European debt rules and the constitutional debt brake. The current reliance on shadow funds to finance core state tasks like defense is unsustainable in the long term, emphasizing the need for these expenditures to be integrated into the regular budget.Germany’s rising risk premiums on government bonds further complicate debt-based financing. As noted by Commerzbank, weak economic growth has already led to noticeable increases in financing costs for government bonds. To ensure sustainable debt levels, structural reforms are crucial to boost economic growth and tax revenue. Increasing productivity and investing in growth sectors can reduce the burden on public finances and improve the country’s ability to fund higher defense spending. More

Argentina achieved a record $18.9 billion trade surplus in 2024, according to official data released on Monday, which largely coincided with libertarian President Javier Milei’s first full year in office, reflecting the impact of his economic policies.Milei’s administration inherited spiraling inflation, depleted international reserves, and extensive economic imbalances that led to a very high probability of a credit event, according to Moody’s. “Decisive fiscal adjustment, alongside measures to halt monetary financing were put in place and have proven effective in addressing imbalances,” it said. Argentina’s financial markets have been buoyant due to Milei’s tough “zero deficit” policies, cooling inflation and the government’s commitment to meet its debt obligations.Moody’s upgraded Argentina’s credit rating for the first time in five years, following a downgrade in 2020 as disrupted debt restructuring talks amid the global pandemic increased the country’s risk of slipping into default.Argentina’s outlook has also been revised to “positive” from “stable” on Friday, as the government continues to make progress on its macroeconomic stabilization program. More

The East-African country has been struggling with heavy debt and looking for new financing lines since last year due to nationwide protests against proposed tax increases. Domestic financing costs have started to decline amid a monetary easing cycle and this could continue if the Kenyan government effectively manages its fiscal consolidation, opening doors for external funding options, the report said.”Given low inflation and a stable exchange rate, there is potential for further reductions in domestic borrowing costs as past monetary policy rate cuts pass through to lower long-term borrowing costs,” Moody’s said. The agency added that a new International Monetary Fund program would enhance Kenya’s external financing while other multilateral creditors such as the World Bank will continue to be significant financing sources, even without the IMF funding.The agency affirmed Kenya’s local and foreign-currency long-term issuer ratings at “Caa1”, citing still elevated credit risks driven by very weak debt affordability and high gross financing needs relative to funding options. More

In the absence of clarity on U.S. trade policy, “risk-on should persist,” strategists at MRB Partners said in a Friday note, underpinned by solid U.S. economic growth and gradually strengthen in the rest of the world. But the downside of this economic outlook is that “it will put a floor under DM [developed market] inflation (and bond yields), with the risks tilted to the upside in the U.S.,” they added.While Trump’s recent remarks have many breathing a sigh of relief as the president didn’t come out swinging on day one in office, “President Trump made clear during his campaign that tariffs were coming, and he has spent his first week issuing a number of statements about upcoming tariffs and other trade restrictions (and taxes, etc.),” the strategist said. Despite MRB Partner’s base-case scenario that U.S. tariffs will be applied “selectively and moderately,” trade restrictions are likely to lead to higher inflation just as they did during the first Trump administration.While the economic picture for the U.S. in the 2025 is far more comforting than that of 2017 –when Trump first took office and the U.S. was still struggling with a negative output gap, which was deflationary– the inflationary backdrop is more acute increasing the risk the spillover from higher tariffs to inflation will be greater this time.   “The U.S. economy is more inflationary and wage pressures much greater than in the late-2010s, so the spillover into other areas of the CPI basket will be greater this time,” MRB said. The big worry, according to the strategists, is that U.S. and global financial markets are “not priced for such an outcome, and not by a long shot.””U.S. asset prices and the dollar are both discounting a good economic outcome, yet such growth is somehow not expected to cause higher inflation,” they said. Should this outcome become a reality and Treasury yields break to the upside, then investors will need to de-risk, they added. More

WASHINGTON (Reuters) -The U.S. State Department issued a “stop-work” order on Friday for all existing foreign assistance and paused new aid, according to a cable seen by Reuters, after President Donald Trump ordered a pause to review if aid allocation was aligned with his foreign policy.The cable, drafted by the Department’s foreign assistance office and approved by Secretary of State Marco Rubio, said waivers have been issued for military financing for Israel and Egypt. No other countries were mentioned in the cable.The move risks cutting off billions of dollars of life-saving assistance. The United States is the largest single donor of aid globally – in fiscal year 2023, it disbursed $72 billion in assistance.Just hours after taking office on Monday, Trump ordered a 90-day pause in foreign development assistance pending a review of efficiencies and consistency with his foreign policy but the scope of the order was not immediately known.The State Department cable said effective immediately, senior officials “shall ensure that, to the maximum extent permitted by law, no new obligations shall be made for foreign assistance” until Rubio has made a decision after a review.It says that for existing foreign assistance awards stop-work orders shall be issued immediately until reviewed by Rubio.”This is lunacy,” Jeremy Konyndyk, a former USAID official who is now president of Refugees International, said. “This will kill people. I mean, if implemented as written in that cable … a lot of people will die.””There’s no way to consider this as a good-faith attempt to sincerely review the effectiveness of foreign assistance programming. This is just simply a wrecking ball to break as much stuff as possible,” Konyndyk said.Trump’s order is unlawful, argued a source familiar discussions in Congress on the move. “Freezing these international investments will lead our international partners to seek other funding partners – likely U.S. competitors and adversaries – to fill this hole and displace the United States’ influence the longer this unlawful impoundment continues,” the source said on condition of anonymity.WAIVERS A USAID official, who requested anonymity, said officers responsible for projects in Ukraine have been told to stop all work. Among the projects that have been frozen are support to schools and health assistance like emergency maternal care and childhood vaccinations, the official said. Across the board, “decisions whether to continue, modify, or terminate programs will be made” by Rubio following a review over the next 85 days. Until then Rubio can approve waivers. Rubio has issued a waiver for emergency food assistance, according to the cable. This comes amid a surge of humanitarian aid into the Gaza Strip after a ceasefire between Israel and Palestinian militants Hamas began on Sunday and several other hunger crises around the world, including Sudan. But Konyndyk said emergency food assistance was just a minority of all humanitarian assistance, adding that nutrition, health and vaccination programs will have to stop, as would relief aid to Gaza and Syria as well as services to refugee camps in Sudan.”It’s manufactured chaos,” said a former senior official with the U.S. Agency for International Development (USAID), speaking on condition of anonymity. “Organizations will have to stop all activities, so all lifesaving health services, HIV/AIDS, nutrition, maternal and child health, all agriculture work, all support of civil society organizations, education,” said the official.The State Department cable also said waivers have so far been approved by Rubio for “foreign military financing for Israel and Egypt and administrative expenses, including salaries, necessary to administer foreign military financing.”Israel receives about $3.3 billion in foreign military financing annually, while Egypt receives about $1.3 billionOther states identified for such financing in 2025 include Ukraine, Georgia, Estonia, Latvia, Lithuania, Taiwan, Indonesia, the Philippines, Thailand, Vietnam, Djibouti, Colombia, Panama, Ecuador, Israel, Egypt and Jordan, according to a request to Congress from former President Joe Biden’s administration. That request also said foreign military financing would “also seek to bolster the Lebanese Armed Forces’ ability to mitigate instability and counter malign Iranian influence.”The Lebanese military is currently trying to deploy into the south of the country as Israeli troops withdraw under a ceasefire deal that requires Iran-backed Hezbollah weapons and fighters to also be removed from the area. More