The Eurozone has been hit by a succession of shocks in the past three years that have severely hampered economic growth: rising energy prices following Russia’s invasion of Ukraine, declining Chinese demand for industrial goods, pressures on the automotive sector from the EV transition and irruption of Chinese carmakers, or higher interest rates have all weighed heavily on activity, especially in Germany where the GDP has been contracting in the past two years. Adding to this already bitter cocktail, political instability has returned and is clouding the outlook for Europe’s two largest economies. France has been in a political crisis since the snap elections held at the start of summer 2024 and has yet to approve a budget for 2025.

With the current composition of Parliament, the situation appears inextricable until new elections are held. In Germany, the ruling coalition broke apart in November and the upcoming elections on February 23 will be crucial for the future of of Europe’s largest economy, and for the Eurozone as a whole. From an economic standpoint, this election will define the fiscal policies that will be implemented to try to revive its severely ailing economy.

Source: Europe Elects

Secondly, while the conservative-right party CDU/CSU and its leader Friedrich Merz can be expected to be the main political force in the next Parliament, it will have to agree with one or two other parties to form a coalition able to govern. Elections results will therefore heavily influence the shape of economic policies going forward, depending on the partners that Mr Merz will have to coalition with. Thirdly, the outcome of the German elections will be decisive for Europe as a whole. At a time when Europe is faced with US protectionism and China mercantilism, it requires leadership to take bold decisions to defend and improve economic growth prospects. The Franco-German tandem is essential in driving Europe forward and, with French politics in limbo, a solid German government and leadership is more than ever needed to lead Europe on the path of reforms and in responding to external challenges. As such, the stakes of the coming German elections are very high for Germany itself and for Europe, and February 23 will be a decisive date for the Old Continent.

With President Trump back in the Oval Office and determined to push forward his heavy economic agenda, the main focus of investors will remain on the President’s announcements in the coming weeks. And plenty of them are expected, on a broad range of topics, from trade policies to the revamping of US international relations, the reform of US administrations or a budget resolution to prepare the vote of a comprehensive tax bill later in the year. In that context, regular economic data expected in February will be mostly watched to gauge the resilience of economic activity before Trumponomics are effectively implemented. The US economy has been expanding above its long-term potential since the end of the pandemic and most recent indicators pointed to a robust start to 2025. The release of business activity indices will allow to assess whether the encouraging trend witnessed since the election of Prseident Trump is confirmed (NFIB Small Business Optimism 11/02, Empire Manufacturing 18/02, Philadelphia Fed 20/02, Flash PMI 21/02 + industrial production data 14/02).

 

While Europe is undermined by political uncertainty and the US are embracing a dramatic policy shift, the global interest rate cycle initiated last year will most likely continue over the course of February. Faced with weak economic growth and despite persisting upward pressures on wages, the Bank of England should stick to its quarterly pace and cut rates for a third time since the August and November 25bp cuts (6/02). Reassuring inflation data for Q4 in Australia have paved the way for the Reserve Bank of Australia to start its own rate cut cycle this month (18/02).

The release of Q4 earnings will continue in February, with several big tech companies providing much awaited updates on their businesses’ dynamics. Alphabet (4/02), along with AMD, Merck, Pfizer and PepsiCo the same day, will launch the month, followed by Amazon (6/02).