The head of Deutsche Bank said at the Handelsblatt banking summit that the German economy has enough resilience to overcome the recession.
(Photo: Marc-Steffen Unger for Handelsblatt)
Frankfurt Deutsche Bank is calling on the German economy to rethink how it deals with China. It is not enough for Europe to make itself less dependent on raw material and energy imports from Russia in view of the war in Ukraine, said CEO Christian Sewing on Wednesday at the Handelsblatt banking summit in Frankfurt.
“When it comes to dependencies, we also have to face the uncomfortable question of how we deal with China,” Sewing said. “The increasing isolation of the country and the growing tensions, especially with the USA, pose a significant risk for Germany.”
One should not make the mistake of comparing China and Russia, said Sewing. But as an entrepreneur and risk manager, the need of the hour is now to look at how to reduce dependence on China over the next few years.
“Of course we do it for ourselves, too,” emphasized Sewing. At Deutsche Bank, direct dependence on China is significantly lower than at most other Dax companies. Because of the great dependence of many customers on China, Deutsche Bank is also indirectly affected by the issue.
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From Sewing’s point of view, the Russian attack on Ukraine and the gas supply freeze to Germany have shown how dangerous it is to be overly dependent on individual countries and regions. At the moment, the focus is therefore “quite rightly” on efforts to become independent of energy imports from Russia.
“We must do everything to ensure that our cars, heating systems and factories do not only run when an autocrat in the Kremlin favors us,” Sewing said. “But that’s not all.”
Sewing calls for “fundamental change”
The Deutsche Bank boss made it clear that becoming more independent from China will be complicated. “China is a cornerstone of our economy.” The country takes eight percent of German exports and provides twelve percent of German imports.
More than a tenth of the sales of all Dax companies come from China. “Reducing this dependency will require at least as fundamental a change as decoupling from Russian energy,” said the Deutsche Bank boss.
The institute published a study in May in which it referred to Germany’s and other European economies’ dependency on raw materials. Against this background, it had called for new sources of supply, more recycling and strategic reserves for important raw materials.
In April, Sewing had already discussed dependence on China in a press conference of the Association of German Banks (BdB), of which he is currently president. At the time, he said that German companies would take a close look at their supply chains with a view to this dependency.
Deutsche Bank expects more bankruptcies
Sewing assessed the economic situation critically in view of the disruptions in the supply chains, the shortage of workers and the high energy prices. Because of these factors, inflation rates have skyrocketed. “As a result, a recession in Germany will no longer be averted.”
Many people could still fall back on their savings to deal with higher prices, and many companies are still sufficiently financed, said the Deutsche Bank boss. “But the longer inflation stays high, the greater the pain and social fuel.”
The economy has enough resilience to cope well with the expected recession. “But that requires the central banks to act quickly and radically.” The day before an important interest rate meeting of the European Central Bank (ECB), the head of Deutsche Bank spoke indirectly in favor of a significant increase in the key interest rate.
“We have to be prepared for high inflation in the long term,” Sewing said. He assumes that the ECB will only come close to its inflation target of around two percent again in the second half of 2024. This means that the situation for the economy will remain very challenging in 2023.
As early as 2022, Sewing is preparing for increasing insolvency figures. “We will certainly see higher loan defaults this year as well – but all within a framework that I think is easy to cope with.”
After a strong first half of the year, Deutsche Bank is already feeling more headwind. “It has become more difficult against the background of the coming winter and the overall situation.”
Deutsche Bank had already warned at the end of July that, given the clouded operating environment, it saw the risk of missing its target of an eight percent return on tangible equity in 2022. On average, analysts also assume that Sewing will not achieve the most important goal that he set at the beginning of Deutsche Bank’s restructuring in the summer of 2019.
More: Deutsche Bank advises strategic raw material reserves – not only for oil and gas