The German government has agreed to introduce an industrial electricity price starting in 2026. The target price is to be 5 cents per kilowatt-hour for half of the electricity consumption and will be limited to the years 2026 to 2028. It is positive to note that the federal government is addressing the problem of Germany's high electricity prices compared to international standards. However, we are skeptical whether the planned subsidized electricity price will actually lead to a structurally better competitive position for the favored industries in Germany.

The intra-European air transport sector has fully recovered from the Covid-19 pandemic, with the number of available seats reaching a new record high in the first half of 2025. However, this recovery is regionally uneven, with Germany lagging significantly behind the European average. A key reason for this disparity is the increase in location-specific costs at German airports.

Germany’s trade deficit with China has been growing and will likely reach a record level of over 2% of GDP this year. At the same time, Chinese export restrictions for on certain chips and several raw materials threaten German supply chains. Against this backdrop the German government is currently working on a new China action plan. In this note we first discuss three key themes defining the evolving relationship with China. We then outline our own thoughts on how to be best cope with the potential “China shock” and existing asymmetric dependencies.

In the first half of this year, investors seemed to reassess their global allocations in light of surging economic policy uncertainty in the US. US stock markets underperformed their European counterparts, and the dollar weakened substantially versus the euro. Market participants suspected a degree of capital flight from the US. However, there has not been a significant redirection of capital from the US towards Europe so far. The slowdown in flows to the US across direct investment, portfolio investment and other investment was not unusual. Instead, the main driver of dollar weakness was probably the increased hedging of foreigners’ dollar positions.

With the parliamentary approval of the 2025 federal budget, Germany’s fiscal expansion is now about to go “live”. In this research note we lay out where the federal government plans to ramp up spending by the year-end, and project where federal spending may actually land. While the federal government plans around EUR 564 bn in total spending for this year, we believe that “only” around EUR 521 bn might be realized, with defense and infrastructure investment spending likely to meaningfully undershoot budget targets due to implementation lags. On our projection, at an estimated 2.2% of GDP, the federal deficit looks set to fall meaningfully short of the government’s own 3.3% deficit target. All in all, the 2025 budget deficit of the general government is unlikely to widen at all at about 2.6% of GDP. In any case, the change in fiscal direction will become apparent in the budget data only next year.

The FX markets’ evolution into a sophisticated, competitive, and complex ecosystem has been driven by the dynamic interplay of regulation, technology, and market structure This report delves deeper into the crucial role of regulation in shaping the FX market and systemic implications. We identify regulatory arbitrage as a key driver behind the evolving linkages between banks and non-bank financial intermediaries (NBFIs).

This week, the monitoring report on the status of the energy transition was published, commissioned by the Federal Ministry for Economic Affairs and Energy (BMWE). Even before its release, some observers feared that the report might be used to initiate an energy policy U-turn. This has not happened. For market participants in the energy sector, of greater importance will likely be the political conclusions the federal government draws from the report. The BMWE names ten key measures, which we present and categorize in this report. At its core, it is about better synchronizing the expansion of renewables, grids, storage, and electricity demand, taking measures for greater security of supply, and allowing for more technological openness. Overall, the cost efficiency of the energy transition must significantly increase.

One year ago the EC presented the Draghi report, a roadmap on how to improve EU competitiveness in light of a widening EU-US productivity gap. In this report we take stock of the concrete policy actions that have been launched since then, particularly those that go beyond strategy papers. Overall, we conclude that progress is mixed - no game changers, but some substantial reforms.

Productivity in the construction industry has been structurally declining since reunification. Despite the lack of progress, we are now seeing signals of massive technological renewal. We see three key elements that will fundamentally transform construction and push back conventional building methods: digitalization, especially Building Information Modeling (BIM), robotics, and industrial construction. Building Information Modeling (BIM) forms the digital backbone of this transformation by neutrally and openly connecting all project participants and enabling comprehensive digital construction planning and execution. Robots have long been a reality on construction sites, but their capabilities are likely to increase considerably in the coming years, driving automation. And industrial construction has been gaining market share for years. Large economies of scale should be possible here. All three technologies can be continuously optimized through the integration of artificial intelligence across the entire value chain. If these developments continue to gain momentum – which we expect – then the productivity slump in the construction industry should end in the coming years.

This is the second article about the future of new construction. In the first article, we showed how technology is reshaping the sector. Here, we deepen the analysis with forecasts up to 2040 and beyond. The German construction industry is consolidating. The significance of medium-sized and larger companies is increasing, and construction client statistics now show more businesses than private households. As anticipated, the share of single-family home completions has declined, while the construction of large multi-family homes in urban centers is gaining prominence. We believe this is a structural development. We expect particularly strong growth in prefabricated construction. Production in a factory hall and the high degree of prefabrication enable high capital intensity and faster adoption of digitalization, AI, and robotics. We anticipate that this will form the basis for significantly higher productivity growth in the construction industry and, contrary to the trend in individual construction, should lead to declining construction costs. Based on these technological developments, which we describe in more detail in a separate report, we forecast that up to 380,000 apartments per year will be completed at the peak in the 2030s. This would significantly surpass the previous cyclical high of 306,000 apartments from 2020.

Retail deposit growth in Germany slowed down in H1 2025 as households continued to shift their savings into more liquid sight deposits. Looking ahead, deposit growth may remain rather low given a likely further decline in deposit rates. The expected economic recovery could make consumers less cautious and more inclined to spend. Outstanding housing loans expanded by a solid EUR 11.4 bn in H1 2025. However, growth of gross new mortgages cooled down slightly in Q2 after mortgages rates edged up. With rates expected to stay elevated, mortgage growth may remain subdued for the rest of the year.

Fixing the crisis of European corporate underperformance is all the more urgent as two headwinds are set to hurt the continent’s companies more than their US peers in the coming years.