Despite Germany’s economic problems, the labour market remains tight, in part an after-effect of the labour hoarding trends that followed the pandemic, and the unemployment rate remains close to record lows. That suggests there are upside risks to inflation from increased government spending.

Nomura now expects the European Central Bank to lower rates only once this year, diverging from most brokerages that still see at least two reductions, after the central bank signalled the possibility of a pause at its latest meeting.