According to public banks, the ECB will raise interest rates again and then keep them at the same level for a long time.
(Photo: dpa)
Frankfurt The public banks expect weak economic development in Germany and initially persistent inflation. They also assume higher interest rates for a longer period of time. The European Central Bank (ECB) believes it will raise interest rates again and then keep them at the same level for a long time.
Dekabank is expecting an interest rate peak from the ECB of 3.75 to 4 percent, and expects the peak for the USA to be 5.5 percent. For the euro area, the banks do not expect an interest rate cut until autumn 2024 at the earliest.
The Association of Public Banks in Germany (VÖB) includes four state banks, BayernLB, Helaba, LBBW and NordLB, as well as Dekabank from the savings bank association and DZ Bank.
Their forecasts for growth in Germany range between -0.1 and -0.6 percent for the current year and between 1.0 and 1.7 percent for the coming year. For the euro area as a whole, the forecasts are between 0.2 and 0.7 percent for 2023 and between 1.2 and 1.5 percent for the coming year.
The experts at six banks expect bond yields to move sideways, and the yield on ten-year federal bonds should settle above the two percent mark. They assume that the structure will continue to be “inverse”, i.e. higher interest rates for short maturities than for long maturities.
Inflation rates stagnate
They see a clear downward trend in inflation. Because government subsidies in the energy sector artificially lowered inflation in Germany last year, there is now a base effect that will probably lead to stagnating inflation rates in the coming months. LBBW also points out that rents in Germany have so far contributed little to inflation, which could lead to a catch-up effect.
With regard to the German economy, pessimism was evident at the VÖB press conference. Jens-Oliver Niklasch from LBBW said: “The economic engine is stuttering enormously.” Above all, consumer demand is weak. In his opinion, a slump in new orders from industry is even more worrying. The special boom in the service sector due to the recovery after the Covid pandemic is easing.
In addition, Germany and Europe are currently experiencing a recession, as is usual after high inflation. It cannot be compared with severe slumps like after the outbreak of the Covid pandemic.
Like some of his colleagues, he points out that the labor market will remain stable – probably also because companies fear the increasing shortage of skilled workers. This stability gives the ECB the chance to fight inflation very vigorously.
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Dekabank’s Michael Klawitter also addressed controversial issues, such as the extent to which companies have used inflation to expand their profit margins, thereby increasing them. He clarified that margins have also increased and that is the reason for the positive development in share prices. Ulf Krauss from Helaba sees it similarly, but emphasizes: “The big gulp has already taken place.” He therefore expects a more cautious price policy for the near future, including discount campaigns in the car business, for example, which is already subject to increasing imports from China suffers. As a result, margins should normalize again.
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