Economic situation better than expected, inflation remains a big challenge

The economic situation in Germany is better than suggested by expectations back in autumn 2022. Prospects are becoming noticeably brighter, commented DSGV President Helmut Schleweis when presenting the joint economic forecast by the chief economists of the Savings Banks Finance Group. "Right now we are not witnessing a wave of insolvencies, or a particular deterioration in ratings, or any deterioration in other indicators for the economic performance of our business customers. Companies are earning well on average, the order books are full. This demonstrates the strength of the German economy, and especially its SMEs, based on their repeated ability to respond flexibly in a crisis," said Schleweis. The chief economists of the Savings Banks Finance Group estimate that GDP could shrink 0,8 per cent this year. For Schleweis, that result could conceivably turn out better.

“Several factors together account for the resilience of businesses and private households,” observed DekaBank’s chief economist Dr Ulrich Kater: “Mild temperatures helped them to save energy. Add to that government support and a robust labour market. Those are important keys to keeping demand stable among private households in Germany.”

Inflation, however, remains a significant strain. This year the Savings Banks Finance Group expects the country to experience an average annual inflation rate of 8 per cent. The forecast for 2024 is 3.5 per cent. Although inflation declined in Germany in December, this is seen as a temporary lull. “The drop in inflation is above all a rebound effect after the previous big jump in energy prices. Those are falling again now, but they have drowned out the brisk inflationary trends that persist in other prices, such as for services,” Kater points out.

Inflation, said Schleweis, robs people of the financial provision they make for the future. That is why there is no sensible alternative to pressing ahead with the monetary turnaraund. However he argued, the European Central Bank had waited too long to reverse interest rates. “Rate corrections that are so crucial to entire economies should really be implemented in good time and with sensitivity. If the pressure has not hit the entire economy full on, but is being cushioned, that is thanks to the long-term thinking behind the financing culture in Germany,” said Schleweis. To protect economic stability, banks would have to sustain the burden on their business in the short term. He hoped that the efforts being undertaken by the banking sector on behalf of the economy as a whole would be recognised.

Schleweis went on to warn that it would be wrong, while responding urgently to crises, to lose sight of the need for long-term structural change. To prevent deindustrialisation, energy costs must be durably and effectively contained. In the long term, the only way to achieve that was to pursue a strong energy transition in favour of renewables: “For that purpose we need huge investments in the greening of industry, in the digitalisation of our society and in infrastructure.” This would require the mobilisation of considerable private capital. As Germany’s leading financial partner, the Savings Banks Finance Group would support this transformation and provide know-how and loan funding.