The turmoil in the banking sector has not affected the state of mind of the largest European economy, where both consumers and companies say in various recent surveys that they are facing spring with a good disposition.
German consumer confidence improves for the sixth consecutive month;
the Ifo business confidence index has also registered its fifth consecutive increase and analysts believe that the GDP data for the first quarter will not be as bad as thought at the beginning of the year.
But the uneasiness caused by the fall of Silicon Valley Bank and its expansive wave does not abate, and economists want to know what consequences it could have in the first economy of the euro.
"A banking crisis would plunge Germany into recession this year," concludes an analysis by the German Institute for Economics (IW).
The study by this institute, which is close to the bosses, calculates that new turmoil in the banking sector would cost the German economy half a percentage point of economic growth this year and two percentage points next year.
The work simulates what consequences a crisis would have for all areas of the economy: the tightening of credit conditions would cause a drop in loans and would hinder investment, which would plummet;
private consumption would decline.
The central banks of Europe and the United States would have to readjust their interest rate policies.
If credit conditions tightened, private activity would fall 1.1% in 2023 and 5.8% in 2024, details the work, published this Sunday.
The main German economic institutes, including the IW, do not believe that a new banking crisis will occur.
What the economist Thomas Obst does in his simulation is to inquire into what would happen if this hypothetical scenario were to arrive, because the danger, he affirms, has not yet disappeared.
As reported by the economic newspaper
Handelsblatt
, the hypothesis proposed in the paper is not a financial crisis like that of 2008, during which more than 400 banks failed in four years and there was a sharp credit contraction, but a mild version of a banking crisis triggered by a crash in the stock markets.
The German Government's Advisory Council of Economists, the so-called
five wise men
, expect the German economy to grow 0.2% this year and 1.3% next year.
Forecasts have improved compared to last fall.
In their latest report, presented last week, they warn that inflation is now the greatest risk because it implies a significant loss of purchasing power and, therefore, the weakening of demand as the engine of the German economy.
The wise expect an inflation rate of 6.6% for this year, while for 2024 they calculate an average of 3%.
The collapse of Silicon Valley Bank in early February and the takeover of Credit Suisse by rival USB has shaken financial markets and stirred up bad memories of the 2008 crisis. Global stock market prices have fallen by 5%. and those of banks in the euro zone, 12%.
Markets are recovering and the DAX, the German benchmark index, reached a new annual high last Friday, but the danger of a new crisis remains.
Obst calculates what would happen if there were a new significant crash in share prices on global stock markets.
Specifically, using the Oxford Economics global economic model, it simulates an average annual loss of 10%.
The fall would put pressure on financial institutions if doubts about their stability arose, which would have concrete consequences for companies and citizens: banks would toughen their credit conditions and the loss of wealth would affect private household consumption.
The Germans would consume 0.4% less in 2023, and 2.2% less in 2024. The fall in investment would especially affect the real estate sector, which is already very stressed in Germany, says Obst.
Rate hike
To fight inflation in the United States and Europe, central banks have raised official interest rates rapidly.
“It is now becoming clear that some banks are being overwhelmed by the tight monetary policy.
They are having problems even before the central banks really put a stop to inflation, ”the IW notes in a press release.
Calculations by the Oxford Economics researchers suggest similar declines in growth.
They have examined what would happen if the German stock markets were to be 30% below the previous year in the fourth quarter.
As a consequence, economic growth in Germany would be 0.8 percentage points lower in 2023 and almost three percentage points lower in 2024. Oliver Rakau, an economist at Oxford Economics, also considers the IW results “totally plausible”, Handelsblatt
cites
.
"Economic prospects, already bleak, have deteriorated further due to the impending banking crisis," says Obst.
“The pressure on central banks is increasing.
The time has come for them to test their current interest rate policy and avoid the risk of contagion to the economy as a whole.
The crucial question will be whether monetary policy can continue to raise interest rates without endangering the stability of financial markets”, he adds.
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