Economy

BENGALURU (Reuters) – German home prices will stabilise in the coming months and rise 2% in 2025, supported by interest rate cuts, while rents are expected to increase more quickly, according to analysts polled by Reuters.The real estate market in Germany, like many of its peers, boomed on ultra-low mortgage rates during the COVID-19 pandemic. But the German market has suffered its worst correction in decades as the European Central Bank raised interest rates at the fastest-ever pace.Home prices plunged 7.2% last year, the biggest drop since official data were first published in 2000, and fell 1.1% in the first quarter of this year compared with the previous one. They have declined nearly 14% from a peak in Q2 2022 after surging nearly 25% during the pandemic.The ECB reduced interest rates in June and is widely expected to cut again next month, leading to a median conclusion from 12 analysts polled Aug. 19-26 that a rebound is around the corner.Average German home prices, which fell 5.7% in the first quarter, will decline 1.4% this year according to the latest survey, a slight upgrade from a 2.0% drop predicted in May. House prices are forecast to rise 2.0% and 3.0% in 2025 and 2026, respectively. Those predictions were largely based on expectations of a further decline in borrowing costs. The ECB will cut its deposit rate twice more this year and four times in 2025, according to a separate Reuters poll of economists.  “Already the first reduction of the ECB policy rate in June and anticipation for more has led to a stop in the decline of mortgage loans and created conditions for a recovery of demand in housing,” said Kholodilin Konstantin at DIW Berlin.”Stagnating construction coupled with continuing immigration encourages demand increases, paving the way toward rising housing prices in the coming years.” AFFORDABILITYNine of 12 respondents said purchasing affordability for first-time buyers would improve over the coming year.    The prospect of additional government support is also underpinning an expected turn in the market. German Chancellor Olaf Scholz is scheduled to meet politicians, ministries and industry representatives in December in a bid to tackle the crisis. A similar gathering last year failed to produce any significant concrete action. Prospects for improved purchasing affordability are not expected to do much to reduce rental cost pressures in Germany’s real estate market, which prior to the stretch of zero interest rate policy was dominated by tenants.Rents surged over 20% in the second half of 2023, a report from JLL – a global real estate services company – showed earlier this year. Average urban home rents are expected to outpace home prices over the coming year, rising 4-6%, according to the median view.”Due to the tense situation in the construction sector, the stagnation of new construction and only gradually-improving affordability of purchasing properties, the situation in the rental market is not expected to ease anytime soon,” said Carsten Brzeski, global head of macro at ING.”As a result, we expect rents to continue to rise faster than house prices over the next 1-2 years.”(Other stories from the Q3 global Reuters housing poll) More

LONDON (Reuters) -Prime Minister Keir Starmer said on Tuesday he would have to take unpopular decisions, raising the possibility of “painful” taxes on the wealthy and spending cuts to try to fix Britain’s myriad of problems he blamed on Conservative misrule.In a speech in the rose garden of his Downing Street office, the scene of COVID parties under a former Conservative government, Starmer promised to end politics as usual, telling voters he was levelling with them that Britain’s problems would only get worse before getting better.Elected in a landslide victory in July, Starmer has vowed to rebuild British society, saying this month’s anti-migrant riots reflected divisions that have taken hold, stoked by what he described as the Conservatives’ preference for populism.He also blamed the last government for leaving him with a 22 billion pound ($29 billion) black hole, something he said was unexpected and which had forced him to take some difficult decisions such as limiting fuel payments to the elderly.The opposition Conservative Party accuses Starmer’s Labour Party of portraying the fiscal situation as much worse than it is so it can hike taxes after campaigning before the election on an agenda not to raise certain taxes on working people.Starmer said he planned to stick to that pledge, but there would be short term pain in what he said would be “unpopular decisions” for the long term good.”There is a budget coming in October, and it’s going to be painful. We have no other choice … Those with the broader shoulders should bear the heavier burden,” he said in a speech to voters he met during the election campaign, referring to a fiscal statement due on Oct. 30.”We have inherited not just an economic black hole but a societal black hole and that is why we have to take action and do things differently. Part of that is being honest with people about the choices we face and how tough this will be,” he said.”Frankly, things will get worse before we get better,” he told the audience of apprentices, teachers, nurses, small business owners and firefighters.The rose garden last made headlines after it was used by former Prime Minister Boris Johnson and his staff to hold parties during the COVID lockdowns, events that Starmer said had shattered the trust between the public and its politicians.Conservative leadership contender, Kemi Badenoch, who is also the party’s policy chief for housing and communities, said the speech was based on a “dishonest analysis”.”The truth is that Keir Starmer is managing voters’ expectations for a decade of decline,” she said in a statement.PRISON PLACESStarmer, a former director of public prosecutions, said he could not believe as prime minister he had to count available prison places to try to deal with those behind the riots that targeted Muslims and migrants.”Not having enough prison places is about as fundamental a failure as you can get. And those people throwing rocks, torching cars, making threats, they didn’t just know the system was broken, they were betting on it, gaming it,” he said.Starmer said the former Conservative government’s failure to tackle problems, and its focus on the “snake oil” of populism, had widened divisions in society which would take time to heal.He inherited an economy with sluggish growth, which is only now showing signs of improvement. Public sector net debt is at the highest since the early 1960s and the tax burden is on track to hit a near-80 year high.Finance minister Rachel Reeves has said the projected public finances overspend means having to cut billions of pounds of spending.”Those who made the mess should have to do their bit to clean it up,” Starmer said, referring to the water regulator’s new ability to place tough fines on companies responsible for allowing sewage into lakes and rivers.”But just as when I responded to the riots, I’ll have to turn to the country and make big asks of you as well, to accept short term pain for long term good, difficult trade off, but the genuine solution.” More

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The ECB raised interest rates at a record pace in 2022 and 2023 to combat inflation. It expects policy reversal, which began with a rate cut in June, to be slow as price pressures continue to linger and inflation is seen staying above the ECB’s 2% target until the end of next year.”We see that an inappropriate fiscal stance can hamper the efficacy of monetary policy,” said Knot, the Dutch central bank chief. “In this case, a more restrictive fiscal policy would have been desirable.”While new fiscal rules were introduced in May, Knot said these did not mean an automatic improvement in the relationship between the ECB and finance ministries across the 20 nations that share the euro. The new rules give governments increased flexibility to spend more during downturns but they will only work if national governments reduce their debt during upturns.”Whether this happens will largely depend on compliance and enforcement of the rules,” Knot said. “In this regard, the new EU fiscal framework will immediately have to prove itself.”It would be helpful if the bloc had some sort of central budget capacity as during the pandemic, but overall spending should not increase, so any supranational spending must be accompanied by reduced spending in national budgets, Knot argued.EU nations joined forces during the pandemic to fund the Next Generation EU recovery fund but some countries, particularly Germany, insist that this should be a one-off and there must not be any permanent joint borrowing. The ECB has long argued that balancing out a single monetary policy with 20 different fiscal policies is next to impossible, and that some form of a joint budget would make policy more efficient and less costly to growth in periods of excessive inflation. More

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ZURICH (Reuters) -Swiss companies and consumers are now able to make instant electronic payments, catching up with other European financial centres where the ultra-fast transfers are increasingly popular.Instant payments allow credit transfers within 10 seconds of a payment being made rather than waiting for days for the transaction to clear. They have been in use in Europe since 2017 and in the U.S. since last year.In Europe, the use of instant payments has risen from 5.2% of all credit transfers in October 2019 to 17.8% in February this year, according to the European Central Bank.Around 60 financial institutions are able to receive and process instant payments, covering more than 95% of Swiss retail payment transactions, the Swiss National Bank said on Wednesday, having launched its scheme with financial systems provider SIX.In the coming months, further banks will announce similar services, the SNB said, with all financial institutions in Switzerland expected to be on board by the end of 2026.Despite the rise of mobile payment apps, the Swiss remain attached to physical cash, which remains the most accepted method of payment by companies with physical points of sale, according to an SNB survey earlier this year.”This market launch represents a further important milestone and reflects the collective stakeholder commitment to the future of cashless payments in Switzerland,” the SNB said. While traditional payments are still possible, the central bank expects instant payments to become established in the medium term, the central bank added.Instant payments reduce settlement risk as the transfer is instantaneous and final, while both parties have an up to date account balance at all times, making planning and budgeting easier.The speeding up of payments could also boost economic development, as companies can more rapidly reinvest the money they receive. More

The brokerage in a note on Monday maintained its base case of a soft landing for the economy with consumer spending broadly determining the trajectory of growth; however, it called the outlook “cloudy”.Earlier this month, J.P. Morgan raised the odds of U.S. recession by the year-end to 35% citing easing labor market pressures, while Goldman Sachs lowered its probability of a recession in the next 12 months to 20%.Last week the U.S. Department of Labor had lowered its estimate for total payroll employment by 818,000 for the period from April 2023 to March 2024, meaning U.S. employers had added far fewer jobs than originally reported in the year through March.This came on the heels of the U.S. unemployment rate jumping to a near three-year high of 4.3% in July amid a significant slowdown in hiring, raising fears the labor market was deteriorating and potentially making the economy vulnerable to a recession.Expectations for a rate cut of up to 50 basis points in the September meeting of the U.S. Federal Reserve have risen, with Chair Jerome Powell signaling in his speech at Jackson Hole last Friday that the ‘time has come’ to reduce rates.With the excess savings built up during the pandemic being used up, “continued income growth will be critical to keep spending rising, since a steady savings rate is probably the best we can hope for,” said Brian Rose, senior U.S. economist at UBS. More

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