Talking Point
Robo advice – when machines manage your assets (Fintech #8)
Many of the things that had us gasping in amazement when we watched science fiction films just a few decades ago have now become a mass-market reality. Today, Hollywood shows us what we can expect if we continue to develop digital technologies at the current pace. Of course, artificial intelligence and its use in all areas of our lives are undoubtedly still a long way off. However, substantial progress is being made especially when it comes to pattern recognition, modern data analysis and the use of self-learning algorithms. Without this technological progress, we would no longer be able to cope with the exponential growth in data volumes and data potential of which we can still only begin to conceive. We need the machines. [more]
Talking point
Growing doubts about negative interest rate policy
The debate about whether a negative interest rate policy (NIRP) helps or hinders the transmission mechanism of monetary policy continues to rage. The BIS and many others – including us – long ago issued warnings about throwing open the monetary floodgates and the side effects of negative central-bank interest rates, and now Mark Carney, the governor of the Bank of England, has also clearly rejected negative interest rates, despite using all the means at his disposal to prevent the UK economy from sliding into recession after the Brexit shock. The package of measures he launched in August significantly exceeded market expectations, but Carney has ruled out negative interest rates, referring to the adverse impact on the capital markets. [more]
Talking point
European banks: Recovery running out of steam?
The European banking industry has gone into reverse gear this year so far, following substantial progress in 2014 and 2015. Its revenues and profits have relapsed into contraction, and the potential for lower loan loss provisions to come to the rescue seems exhausted. Once more, cost cuts have not kept pace with the retreat on the income side. In a market environment that continues to be very challenging, banks may have to resort to even tougher measures to put themselves on a sustainable footing again. [more]
Germany
Focus Germany: ECB helps industry and boosts property prices
There is a high level of excess demand in the housing market and it has grown in recent years. Demand for credit is also growing at a correspondingly rapid pace. The supply of credit could be boosted by further monetary stimulus. In the medium term, more buoyant lending is likely to increase interest rate risk. However, if lending growth remains low, there will be increased risk of overvaluations and a house price bubble. This is particularly true when little new housing is financed and lending is largely for existing property. Given the high level of excess demand in the housing market and the fact that office buildings are being converted to residential buildings, office space is also likely to be in short supply in the coming years. As a result, rents in the office market can be expected to rise more strongly, and could – for a time – outstrip the rise in rents in the housing market. Since Chancellor Merkel assumed office in 2005 her term has been dominated by crisis management, which often required leadership and moderation of differing interests in Europe. Managing the UK’s departure from the EU will have top priority for the time being. Nonetheless, Merkel is likely to focus her attention on domestic topics as much as on European ones in the upcoming months given the looming federal elections in autumn 2017. Also in this issue: Fewer insolvencies in German industry. [more]
Spotlight on Germany
 
 
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