EUROPEAN FISCAL: Stability Council Sees German Govt Debt At 80% GDP In 2029
The fiscal projection of the German "Stability Council" finds that "the Maastricht debt ratio could rise to around 80.25% of GDP by the end of the projection period in 2029" in Germany. This compares with a realised debt ratio of 62.5% of GDP in 2024.
- It is difficult to gain a firm view on current consensus on the German Maastricht debt ratio for the years ahead, but 80%+ seems to be towards the higher end of estimates we've seen previously.
- "The members of the Stability Council agreed that such a dynamic development of debt levels relative to economic performance, if it continued, would jeopardise the long-term sustainability of public finances. In order to counteract such a development, the Stability Council therefore considers consistent consolidation measures at all levels of government, comprehensive structural reforms and the investment- and growth-enhancing use of funds from the Special Fund for Infrastructure and Climate Neutrality to be urgently necessary."
- The Stability Council is a joint body of the German federal government and the states, and is enacted to strengthen "institutional conditions for ensuring long-term sustainable budgets at federal and state level".
In addition, the council notes: "By 2026, the general government deficit ratio could rise to 4¾% of gross domestic product (GDP) before falling again and reaching 3¾% of GDP in 2029. Taking into account the NEC, even with an assumed extension for 2029, the deficit ratio is likely to remain within the maximum permissible level of 3% of GDP, with the exception of 2026 and 2027. Exceeding this level in later years could have a negative impact on compliance with European fiscal rules."
Full press release here (in German).
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LOOK AHEAD: US Macro: PPI (Wed) and CPI (Thu) Inflation
US PPI inflation is released on Wednesday before CPI inflation on Thursday, an unusual ordering that should see core PCE implications dialled in after the CPI release rather than the usual wide range waiting for specific PPI details. PPI will be watched more closely than usual this month after a far stronger than expected jump in last month’s July report fired a warning short over tariff-based cost pressures starting to feed through. That included a 0.6% M/M increase in our preferred core series of PPI ex food, energy & trade services, which strips out items such as the then booming portfolio management & investment advice category following the strength in equity markets. It's too early to gauge an accurate sense of analyst expectations for August.
CPI inflation on Thursday will then be the last major release ahead of the Sep 17 FOMC decision. Consensus looks for core CPI at 0.3% M/M after the 0.32% M/M in July, another monthly increase comfortably above a pace consistent with 2% inflation. August should in theory start to see the largest tariff impacts along with September and possibly October. Returning to July’s report, core goods inflation was softer than expected, at a still solid (by core goods standards) 0.2% M/M for a second month running but about half that of 0.4% expected by analysts. Instead, non-housing core services surprised higher. The latter was a “dangerous” development in the words of a usually dovish Chicago Fed’s Goolsbee (’25 voter), who speaking after Friday’s payrolls report is still undecided on a September cut whilst looking for August inflation data “to get more information”.
LOOK AHEAD: US Macro: Payrolls Preliminary Benchmark Revisions (Tue)
- The BLS on Tuesday will publish preliminary estimates of benchmark revisions, based off QCEW data for Q1.
- These will give an indication of the actual benchmark revisions on the Mar 2025 level of payrolls due with the Jan 2026 payrolls report released in early February.
- Bear in mind that the final benchmark estimate tends to nearly always be more negative than the preliminary figure – see historical values to the right.
- That doesn’t mean they can’t be large again after last year’s historically negative revision that lowered the level of payrolls by ~600k. Initial estimates we’ve seen look for another large downward revision, with the smallest being worth -550k but with wide ranges higher.
FED: Barclays Adds A Cut To 2025 Fed View
Barclays analysts now expect three Fed cuts in the remainder of the year, adding October to their pre-existing call for 25bp reductions in September and December. "Given the disappointing August employment report, we expect the FOMC to see more elevated downside risks to the employment side of the mandate."
- As for a 50bp September cut, "we think that the FOMC will view [that] as sending too strong a signal that labor market conditions are deteriorating. Indeed, we think that participants such as Powell understand that the slower pace of payroll employment reflects at least, in part, slower labor supply, which does not translate into increased labor market slack."
- For 2026 they continue to expect 25bp cuts in March and June to 3.00-3.25%, but "we do not think the FOMC will be able to cut rates more than twice next year, as we think that activity will show some slight acceleration, with the economy adapting to the new tariff environment and fiscal policy providing some support, and the unemployment rate will revert down amid limited increase in labor supply."
