Europe’s largest economy is set for contraction on the back of soaring inflation, energy bottlenecks, and the disruption to global supply chains, Deutsche Bank AG Chief Executive Officer Christian Sewing warned.
“We will no longer be able to avert a recession in Germany,” Sewing said during a speech in Frankfurt on Wednesday. “We believe that our economy is resilient enough to cope well with this recession — provided the central banks act quickly and decisively now.”
The euro zone is almost certainly entering a recession, with surveys today showing a deepening cost of living crisis and a gloomy outlook that is keeping consumers wary of spending.
While there was some easing of price pressures, according to the surveys, they remained high. The European Central Bank is under pressure as inflation is running at more than four times its 2% target, reaching a record 9.1% last month.
He cited a halting of globalization due to major geopolitical tensions, which is unlikely to abate any time soon and has disrupted global value and supply chains, along with a bottleneck in the labor market and a scarcity of gas and electricity leading to soaring costs, as key reasons why euro zone inflation is at record highs.
“As a result, we will no longer be able to avert a recession in Germany. Yet we believe that our economy is resilient enough to cope well with this recession — provided the central banks act quickly and decisively now,” Sewing said, according to a translated transcript.
He added that for now, many people still have pandemic savings to fall back on in order to meet rising energy costs, while most companies remain “sufficiently financed.”
The German economy grew by the narrowest of margins in the second quarter, and the war in Ukraine, soaring energy prices, the pandemic and supply disruptions are now pushing it towards a downturn, which it may already be in. read more
A survey published on Monday showed Germany’s services sector contracted for a second month running in August as domestic demand came under pressure from soaring inflation and faltering confidence.
Russia’s war in Ukraine has forced the European Union to accelerate efforts to reduce its reliance on Russian energy and raw material imports, and Sewing said the invasion had shone a spotlight on the dangers of becoming too dependent on individual countries and regions.
“When it comes to dependencies, we also have to face the awkward question of how to deal with China. Its increasing isolation and growing tensions, especially between China and the United States, pose a considerable risk for Germany,” Sewing said, adding that China had become a “cornerstone” of the German economy.
He highlighted that China accounts for around 8% of German exports and 12% of imports, while more than one-tenth of the sales of companies listed on the country’s DAX stock index go to China, adding that the pandemic made clear the extent to which German supply chains rely on Russia.
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