Three consecutive years of negative real interest rates

A sizeable pension increase in the middle of the year and good collective wage agreements will improve the income perspectives of private households in Germany once again from the second half of the year. On the other hand, the currently noticeable effects of the economic slowdown will most likely filter through more quickly to private consumption. This will lead to a further increase in the private savings rate, with the 10 percent mark being cleared this year. In 2019, income growth can then be expected to decelerate further and the savings rate decline to 9.8 percent.

Besides savings, private asset accumulation also bears the hallmark of the persistently low interest rates. Since 2008, the nominal average return on deposits, bonds and insurances has been steadily falling. From 2014 to 2016, the real return on this part of private wealth formation only remained positive thanks to the very low inflation. This changed last year with the „return“ of inflation. The inflation rate rose to 1.7 percent and the real interest rate turned negative at -0.8 percent. With consistently low nominal interest rates and an expected inflation rate of 1.8 percent, real interest rates are likely to remain negative this year and next at around -1 percent. This means value losses in private financial assets to the tune of EUR 44 and 46 billion respectively.

But the extremely low interest rates are decelerating the growth of private wealth even in nominal terms. There is virtually no compound interest effect any more. By contrast, further asset accumulation should be possible thanks to the consistently high level of savings and possible increases in the value of stocks, funds and certificates. Overall, we expect private financial assets to creep up steadily to nearly EUR 6.6 trillion by the end of 2019.

 

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