Outlook 2027 – at a crossroads

The coming year is likely to be a year of decisions. The French will elect a new president, thereby also deciding how France’s fiscal crisis will unfold. In addition, the US and Iran must decide how to proceed with their conflict. Investors must also make up their minds about whether they want to continue financing the expansion of AI.

France: Muddling through with the ECB’s help

The first round of France’s presidential election is scheduled for April 18. According to opinion polls, Marine Le Pen has the best chance of winning. But even if her party were to secure an absolute majority in the parliamentary elections that usually follow (a rather unlikely outcome), she would probably not initiate the urgently needed reduction in France’s excessively high budget deficit. There are too many question marks surrounding the budget plan she has presented. France’s payments to the EU, for example, are unlikely to be cut drastically. Above all, Le Pen wants to lower the retirement age back to 62. All of this makes a substantial decline in France’s excessively high budget deficit unlikely. Nevertheless, we do not expect a sovereign debt crisis like the one 15 years ago. The ECB is standing ready in the background with its TPI bond purchase program. France will muddle through with the ECB’s help, without the underlying problem being resolved.

Iran war: Gradual de-escalation and further declines in oil prices

Decisions are also due in the Iran war. The nature of this conflict has changed as a result of so-called dark transits: oil shipments escorted by the US Navy through the Strait of Hormuz with their position signals switched off. As the region’s oil exports have now recovered to 80% of their pre-war level, the US, like Iran, now has staying power. A stalemate has developed. If Iran were to reduce its attacks in this situation, the US could ease its blockade of Iranian ports. This would lead to gradual de-escalation, although setbacks along the way could not be ruled out.

Based on this scenario, we expect the price of a barrel of Brent crude to fall to $85 towards the end of this year and to $65 towards the end of next year. For natural gas, which is suffering from more extensive damage to production facilities and benefits less from dark transits, we expect the price to decline to €95 per megawatt-hour by the end of this year (previously: €75) and to €55 by the end of 2027. Gas prices will therefore remain well above their pre-war level for much longer than oil prices.

For full text see attached PDF-Version.