Dollar hits four-month low as Trump warns tariffs will cause ‘a little disturbance’, European shares rally after German debt brake deal – business live | Business

China has set its GDP target for 2025 at “around 5%”, a figure which was unveiled by Premier Li Qiang at the opening session of the National People’s Congress (NPC) in Beijing on Wednesday.

Li announced the growth target in the annual government work report, which also outlined plans to stabilise economic growth by boosting domestic demand and creating 12m new urban jobs.

Economists believe that the 5% growth target, which is in line with 2024’s figure, will be challenging. China reached its target last year with a last-minute export boom. Exports surged by 10.7% in December, pushing China’s trade surplus to a record $1tn. But with a new US-China trade war as Donald Trump settles into his second term in the White House, this year it will be harder to boost the economy through trade.

This week, Trump doubled tariffs on most Chinese goods to 20%, with some duties reaching 45%. China swiftly announced retaliatory tariffs of its own, imposing duties of up to 15% on agricultural goods.

“The target is very ambitious,” said Alicia García-Herrero, the chief economist for Asia Pacific at investment bank Natixis. She said it was “non-reachable” without a bigger stimulus, especially in light of the increased tariffs.

China’s challenge for 2025 will be shielding its economy from the impact of the trade war. Economists have urged policymakers to boost stimulus measures, especially those that would put more money in consumers’ pockets to boost domestic demand.

European markets are rallying, led by Germany after Germany’s prospective partners in government, the CDU/CSU and SPD, agreed on a major loosening of Germany’s fiscal straitjacket – described as “a really big bazooka” by economists.

The Dax in Frankfurt leapt by nearly 3%, and is set for its biggest daily increase since November 2022.

The German mid-cap index is also powering ahead, rising by 4.2%, and on course for its biggest daily gain in three years.

The euro is also rising, up 0.6% to $1.0687 against the dollar, while the pound has gained by 0.4% to $1.2850. The dollar has been sliding amid fears of a “Trumpcession” in the wake of Donald Trump’s trade policies, and some even question the greenback’s status as a safe-haven asset.

Eurozone bond yields have jumped, with the yield (or interest rate) on the 30-year German government bond rising the most since the late 1990s, after the agreement to loosen the country’s debt brake.

The 30-year yield surged as much as 25 basis points to 3.07%, the biggest daily rise since October 1998, and is now at 2.98%.

Holger Schmieding, economist at Berenberg, said:

These proposals for an immediate loosening of Germany’s fiscal rules will likely be enacted. They are a fiscal sea change for Germany.
At home, the infrastructure fund signals that the new government will seriously tackle key domestic deficiencies. I look forward to the day in the – probably still somewhat distant – future when German trains may run as fast and punctual as those in France, Switzerland or Austria.
Let us hope that, after agreeing on such a major fiscal reform, the government-in-waiting also finds the courage to enact the pro-growth supply-side reforms which Germany needs to become a better place for private investment again.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The dollar has fallen further, hitting the lowest level since November, after Donald Trump said his new tariffs will cause “a little disturbance” in a combative speech to Congress, as he vowed to push ahead with his hugely divisive domestic agenda.

In the first major policy speech since he took office in late January, the president doubled down on his decision to impose 25% tariffs on Canada and Mexico, the US’s two biggest trading partners, and an additional 10% levy on China. Trump said:

Tariffs are about making America rich again, and making America great again.
It’s happening, and it will happen rather quickly.

China and Canada said they would hit back with retaliatory tariffs.

However, Trump’s trade polices have sparked “Trumpcession fears” – concerns that they could push the American economy into a contraction or even recession – and there is talk that the dollar could lose its safe-haven status.

A closely watched gauge of the US economy weakened a couple of days ago. The Atlanta Federal Reserve’s GDPNow model now estimates US GDP will shrink at an annualised rate of 2.8% in January-March.

The dollar index, which measures the greenback against a basket of major currencies, fell to 105.35 this morning, the lowest since 11 November.

Analysts at Deutsche Bank said:

We have published today on a concern around the loss of the dollar’s safe-haven status. Our views on this are evolving and will depend on the US policy path in coming months, in particular on the extent to which it continues to pursue disruptive domestic economic outcomes.

Stock futures are pointing to a higher open in Europe, with Germany’s Dax seen rising by 2.3% after a German debt brake deal was announced, while the FTSE 100 index is expected to gain 0.9% when markets open at 8am.

The yield on Germany’s two-year government bond jumped by 7.8 basis points to 2.093% after a deal to loosen the German debt brake. The partners in Germany’s next government have said they will seek to loosen rules on running up debt to allow for higher defence spending.

Economists at Deutsche Bank called it a “a historic ‘whatever it takes’ moment”.

The leaders of CDU/CSU and SPD (which are in talks to form a coalition government after a national election just over a week ago) agreed on an even more significant fiscal expansion than expected.

The plan is to make three big changes to the debt brake (which limits new borrowing to 0.35% of GDP) in the very near term, and to convene the outgoing parliament in which the centrist parties still hold a constitutional majority to push this through:

• A €500bn special purpose vehicle for infrastructure investment, of which €100bn will be allocated to the federal states, called Länder.

• A reform of the debt brake to exempt any defence spending over and above 1% of GDP, effectively permitting open-ended borrowing for defence.

• A reform of the debt brake at the Länder level to raise their net borrowing cap from 0% to 0.35% of GDP, as at the federal level.

The Agenda

• 9am GMT: Eurozone HCOB Services and composite PMIs for February (final)

• 9am GMT: UK new car sales for February

• 9.30am GMT: S&P Global Services and composite PMIs for February (final)

• 2.30pm GMT: Bank of England governor Andrew Bailey and other policymakers are quizzed by Treasury committee about interest rates

• 3pm GMT: US ISM Services PMI