Germany

FOMC – not much concrete information

Short-term economic risks have diminished The Open Market Committee of the Fed left its key interest rates unchanged yesterday evening. The accompanying press statement provided no concrete indications as to the possible timing of the next interest rate adjustment. However, the current economic assessment is significantly more positive than in the previous statement. The Fed states that short-term risks for the US economy have diminished. The evaluation of the situation of the labour market also sounds significantly more positive. Various indicators suggest that capacity utilisation in the labour market has increased. Consumer spending is reported to be robust and economic growth has improved. At the same time, the text passage stating that the Fed is closely monitoring the global situation was left unchanged. This could be understood as an indication that the Brexit consequences for global economic growth and for the US economy are not yet foreseeable and that in…

Negligible growth – negligible interest rates

There is a frequently cited rule of thumb that says government bond yields should roughly correspond to nominal growth domestic product growth. However, this rule does not describe an exact correlation but rather a structural, long-term relationship between the financial markets and the real economy. The yields of government bonds are linked to a country’s economic activity based on various impact channels. In the long term, therefore, yields tend to follow the trend predetermined by potential growth. Potential growth worldwide is in turn shaped by structural changes and has been on a downward trajectory for a number of years. This is due above all to low productivity growth and persistently weak investment. However, the shift in the segments‘ shares in gross domestic product in the developed countries – away from manufacturing to the service sector – has reduced potential growth. Besides these real economic factors, low inflation momentum also plays…

Bank Lending Survey signals that lending is growing – How successful is ECB policy really?

As can be seen from the ECB’s July Euro Area Bank Lending Survey, the banks in the Euro area still expect increasing credit demand. Although the number of more optimistic banks has shrunk somewhat compared to April, they are nevertheless still clearly in the majority. Above all, the banks take a positive view of credit demand from enterprises and households. Nor do they plan to tighten their credit standards. That sounds good. So is there hope that the upturn in bank lending that is gradually emerging will pick up momentum and stimulate investment in the economy? Ultimately, this is what the ECB’s very expansionary monetary policy aims to achieve. A closer look at the statistics shows that the inundation of very cheap central bank funds has not been very efficient so far: while the volume of loans granted by commercial banks “to Euro area non-financial corporations” grew a considerable 3.1…

Labour costs are rising in Germany – good for consumption, but bad for competitiveness

The statutory minimum wage, that has been in force for one and a half years, is to be raised for the first time in early 2017. The so-called minimum wage commission proposes an increase from currently EUR 8.50 to EUR 8.84 per hour. This corresponds to a four percent rise compared with the gain in average wages and salaries in Germany since December 2014 of 3.2 percent. The commission has thus proposed a slightly disproporationate increase but has not heeded some of the demands made in recent weeks to „take a bigger slice of the cake“ and raise the minimum wage to a round figure of EUR 10. And rightly so, because a disproportionately high increase would have significantly heightened the pressure at the lower end of the wage scale once again. Given the still insufficient time for reliable empirical analyses since the introduction of the minimum wage, we still…

Little ice age almost over at the end of June

Still a disadvantageous risk-reward profile in the equity market for the time being / Delay investment decisions until after 23 June Since the beginning of March the DAX has moved as sluggishly and as sparingly as a bear in winter. The trading range of the German benchmark index was mainly between 9,500 and 10,300 points. The reporting season is over, there is no relevant company news. Only very few investors dare leave cover in view of an imminent Brexit, even though the severe negative factors of the recent past (falling demand from China and the emerging markets, fluctuating currency exchange rates, a collapse in the oil price) have been factored in and a trend towards recovery is visible. The good news is that from the second quarter onwards company reports will be better again. However, earnings growth is only likely to improve at a modest rate, and the above average…

Is the Mortgage Credit Directive stifling the property lending business for German banks?

The European Mortgage Credit Directive is intended to provide better protection for bank customers against poor advice. The law which came into force on 21 March to implement the Directive in Germany has however triggered considerable uncertainty. A majority of banks who participated in the Bank Lending Survey already announced in January that they were tightening their guidelines for private mortgage loans. In the April survey – shortly after the rules were adopted – the proportion of banks planning to operate on a more restrictive basis had risen to more than 34 per cent. This is the highest level since the survey began 14 years ago. Under the new rules, a mortgage loan customer is only regarded as credit worthy if they are likely to be able to repay the loan in full. When monitoring creditworthiness, the bank may not rely mainly on the property value or an expected increase…

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