4 questions for Dr. Michael Holstein, DZ BANK

The ECB raised interest rates by 75 basis points on 8 September, more than ever before in its history. The large interest rate hike and also the subsequent aggressive wordings were a clear sign that the European monetary watchdogs are now prioritising the fight against inflation. Thus, further monetary tightening is in sight, even if economic growth cools down. We have therefore also raised our interest rate forecast and expect further interest rate hikes by a total of 150 basis points over the next 12 months, to 2.75 % for the main refinancing rate and 2.25 % for the deposit rate.

The inflation rate in Germany was 7.9 % in August and has been well above 7 % for half a year. In the autumn months it is likely to rise even further because the relief from the fuel rebate and the 9-euro ticket will no longer apply and the gas levy will be added. For 2022 as a whole, we expect consumer price inflation of 8.2 %, and in 2023 it is likely to remain at a very high level of 6.4 %. The inflation rate and thus also the loss of purchasing power for private households are thus likely to remain at a very high level at least until well into next year.

The high energy prices are weighing on the German economy. Some companies have seen enormous increases in their production costs, and in energy-intensive industries in particular, production is hardly worthwhile anymore. So here the high gas and electricity prices are already causing shutdowns without having to impose them. State aid programmes to bridge the next few months, especially for smaller medium-sized companies, are absolutely necessary here.

For private households, the enormously high heating costs are also a heavy burden. Especially for those on smaller incomes, state support will be indispensable to get through the winter. Even more so, as food prices are currently also rising at double-digit rates. Private consumption will therefore undoubtedly suffer from tight household budgets in the coming months and put a corresponding strain on the economy.

Instead of a sharp price correction, gradual price concessions are more likely in the German real estate market, because supply is also tightening in parallel to the weaker demand due to the crisis. Thus, practically all properties under construction have been sold, while planned new construction projects are on hold because rapidly rising construction costs would require even higher sales prices than before. Moreover, the pressure to sell is low. Fixed interest rates shield borrowers from rising interest rates. If fixed interest rates expire, the interest rate level is almost unchanged compared to 2012. Rented properties benefit from low vacancy rates and mostly strong increases in rental income. Commercial rents are also often inflation-indexed.