Heike Mai

Banking and financial markets, Economic and european policy, Macroeconomics, Real estate, Sectors and resources

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Analyst:

Eric Heymann, Heike Mai, Jochen Moebert, Marc Schattenberg, Marion Mühlberger, Sebastian Becker, Stefan Schneider, Ursula Walther

The external environment as well as monetary and fiscal policy should provide strong headwinds. Sentiment will likely be dragged lower by the increasingly evident structural problems. We anticipate a modest recession during the winter half to be followed by a gradual recovery from spring onwards. We expect the government to survive the internal quarrels with respect to the 2024 budget, following the constitutional court ruling. Debt brake reform is unlikely in the short run. A cross-party consensus for a Transformation Fund 2.0 might emerge before September regional elections. [more]

October 13, 2023

A double-dip recession

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Banking and financial markets, Economic and european policy, Macroeconomics

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Analyst:

Eric Heymann, Heike Mai, Jochen Moebert, Marc Schattenberg, Marion Mühlberger, Sebastian Becker, Stefan Schneider, Ursula Walther

A double-dip recession. Hard and soft data point to a GDP contraction of about 0.3% in Q3. Despite receding inflation,we expect that private consumption will only gradually come out of its rut, as consumer confidence has remained depressed. While the overall decline in GDP over the double-dip recession (Q4 22/Q1 23 and Q3 23) will probably be less than 1 percentage point, a renewed fall in GDP provides another blow to already downbeat German confidence. This negative feedback loop will likely weigh on the economy in 2024. In particular, structural supply bottlenecks look set to hamper growth opportunities and the energy transition is likely to slow potential growth in Germany towards 0.5% and keep the inflation rate above 2%. [more]

July 6, 2023

European autonomy in payments: Digital euro is not the only option

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Banking and financial markets, Digital

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Talking Point

To strengthen the EU’s strategic autonomy, its authorities are also pushing for a retail payment solution provided by European players. A market-backed project and a state-backed project have emerged. While the European Payments Initiative (EPI) will build on existing instant payment infrastructure and the wallet is supposed to go live early next year, the legal and technical foundations for the digital euro are still under development. As both solutions could easily cannibalize each other, better coordination would benefit Europe. [more]

May 12, 2023

Sovereign exposures of European banks – revisited

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Banks’ domestic sovereign exposures in the euro area ballooned during the financial and European debt crises but have markedly declined since then. Still, with 5% of total assets and 76% of capital, they remain considerable and a risk on bank balance sheets, especially in light of the general exemption from capital requirements and concentration limits. Risk parameters differ between national banking markets, and the home bias remains high, at around 80%, as banks hardly diversify into other euro-area debt. The cross-country differences make it difficult for policymakers to agree on a fully mutualized European Deposit Insurance Scheme and thus complete the Banking Union. [more]

April 21, 2023

Bank deposits in Germany: Highly sticky

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Heike Mai, Jan Schildbach

Analyst:

Germany Monitor

Recent tensions in the US and European banking sectors have brought traditional deposits and their stability as the most important refinancing instrument into focus. However, at least in Germany, core private-sector deposits remain a very reliable source of funding, for various reasons. [more]

December 19, 2022

Outlook 2023/24: New global realities

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Banking and financial markets, Economic and european policy, Macroeconomics, Real estate, Sectors and resources

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Analyst:

Eric Heymann, Heike Mai, Jan Schildbach, Jochen Moebert, Marc Schattenberg, Marion Mühlberger, Sebastian Becker, Stefan Schneider

We look at the expected recession in the winter half-year 2022/23 and the onset of recovery, how inflation will peak, while the labor market loses momentum and private consumption is hit by the loss of purchasing power. Construction and Capex spending are set to deteriorate. Fiscal policy continues to lean against the headwinds but should normalize somewhat. Loan growth, both with corporates and private households, may slow substantially. In a medium-term perspective, we discuss risks for the manufacturing industry and Germany’s geopolitical and competitive position. [more]

September 14, 2022

The end of negative ECB interest rates: German banks reduce their vault cash

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Banking and financial markets, Digital

Chart in Focus

On July 21, the ECB announced that it would raise the interest rate on the deposit facility from -0.5% to 0%, effective July 27. By the end of that very month, banks in Germany had reduced their stock of banknotes and coins by a record EUR 11 billion. There is much to suggest that they will continue to reduce their non-interest-bearing cash holdings, as the ECB interest rate will rise further to 0.75% in mid-September. [more]

July 19, 2022

Stablecoins and DeFi: Passing the test

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International

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Analyst:

Talking Point

Stablecoins and the DeFi ecosystem have taken a hard hit recently. However, the current stress for cryptos caused by tighter monetary policy may reveal which services offer real value for customers. In fact, leading collateral-backed stablecoins have weathered the storm quite well. The ecosystem will probably face further losses but emerge consolidated and well positioned for continued growth. [more]

May 20, 2022

Struggling with the historic watershed

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Banking and financial markets, Economic and european policy, Macroeconomics, Sectors and resources

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Analyst:

Barbara Boettcher, Eric Heymann, Heike Mai, Marc Schattenberg, Marion Mühlberger, Sebastian Becker, Stefan Schneider

In this edition of Focus Germany we look at the cyclical, short-term challenges brought about by the Ukraine war with regard to growth, inflation and public finances. We also analyse the more structural longer-term challenges, such as reducing the countries’ energy dependence on Russia and the governing coalition’s efforts to integrate new priorities precipitated by the historic watershed into its already very ambitious agenda. [more]

March 25, 2022

Stablecoins: DeFi, Libra and beyond

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In 2021, stablecoins’ market capitalization increased multifold to USD 170 bn. More importantly, they are the most traded coins in the entire crypto space and crucial for decentralized finance (DeFi). In the future, stablecoins could also gain traction in the real world – adding to the competition in the fields of retail and corporate payments. Stablecoins differ considerably in their price stabilization mechanisms and can pose risks, which have come into the spotlight of regulators. [more]

December 15, 2021

Payment choices in Europe in 2020: Convergence at the till, reinforcement of national differences at the online checkout

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Over 101 billion non-cash payments were made in the euro area in 2020, a meagre increase of 3.7%, which mainly reflects a slump in growth of card payments. However, depending on the country and on the payment situation, there were different trends during the pandemic. At the till, payment habits are converging towards card use. In online shopping, national differences (card or e-payment solution) seem to become more pronounced. [more]

July 12, 2021

The digital euro: Political ambitions and economic realities

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Banking and financial markets, Digital

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Analyst: