Schleweis: ECB must quickly prepare the ground for a rate reversal

Inflation in Germany and in the euro area is likely to remain above the European Central Bank’s (ECB) target level of two percent for some time to come. This is demonstrated by the latest Common Economic Forecast of the Savings Banks Finance Group. For 2022, the chief economists of the Savings Banks Finance Group expect the Harmonised Consumer Price Index (HCPI) to increase by 3.2 percent in Germany and by 3.0 percent in the euro area – inflation rates which go significantly beyond what the ECB can regard as ensuring price stability.

“In view of the high inflation rates, the ECB will need to prepare quickly for changes in its monetary policy. The earlier the ECB demonstrates its willingness and ability to take appropriate action, the more balanced its approach can be. If the ECB gives free rein to the increase in prices for too long, it will have to intervene all the more vehemently later on. On the other hand, braking too hard will jeopardise the economic recovery, of which we are just seeing signs after the massive setbacks due to the Covid pandemic”, said DSGV President Helmut Schleweis today when he presented the Common Economic Forecast in Berlin.

For 2022, the chief economists of the Savings Banks Finance Group predict growth of 3.5 percent for the German economy; in nominal terms, Gross Domestic Product (GDP) should return to the pre-Covid-crisis level in the course of the year. For the year 2023, the chief economists expect economic growth of 2.6 percent in Germany. In the euro area, economic recovery will probably increase even more: by +3.9 percent in 2022 and by +2.7 percent in 2023.

“The German economy’s growth will be slightly slower than that of the euro area as a whole because the German economy will have to cope not only with Covid but also with structural changes. Given the major role played by industry in the German economy, massive investments will have to be made for the country’s ecological transformation; initially, however, the economy will have to address shortages of materials and high energy costs”, said Uwe Dürkop, chief economist of the Berlin Savings Bank, who – on behalf of the chief economists of the Savings Banks Finance Group – presented the economic forecast this year together with DSGV President Helmut Schleweis

In the view of the chief economists of the Savings Banks Finance Group, private consumption will initially be the key driver of economic growth. Investments will pick up speed into 2023.

“The economic recovery in Germany and Europe is gaining momentum, although it will still sputter in the first few months of 2022 due to the Omicron variant. By and large, however, GDP growth will increasingly pull away from the number of infections and Covid measures. People in Germany and Europe will start to buy again, and companies will begin to invest. What we don’t need now are exploding prices and stumbling blocks for the financing of investments”, said Schleweis.

In his comments, Schleweis also spoke out against the anti-cyclic capital buffer which Germany’s financial regulators want to activate. This would significantly restrict the ability of banks and Savings Banks to grant loans. Substantial funds will be required to rev up the economy after the Covid crisis and to achieve the ecological transformation of both the economy and society, e.g. by improving the energy efficiency of buildings.