Source: Allianz —
Monetary policy in Central and Eastern Europe ahead of the curve?
- Households’ pandemic savings are still large in both Europe and the US. These excess savings relative to consumption are largest in the UK and Spain at around 20-25%. In the US and Germany, however, they stand at less than 8%.
- The US stock of excess savings has been depleting fast with the reopening and the inflation surge: these savings could be fully depleted after the summer this year.
- In Europe, excess savings have not been spent as much as in the US, mostly because of the uneven distribution (the bottom 40% of households has virtually no excess savings while the top 20% has some form of extra savings between EUR14,000 in Germany and EUR33,000 in Spain) but also because they are mostly held in illiquid assets such as real estate.
- Recession fears, sticky high prices, and rising interest rates – as well as social protection reforms – mean that savings intentions are elevated in Europe, and even rising in Germany. Consumer spending will be the weak link in 2023.
Market Movers
- German stagnation—rising insolvencies? German business insolvencies are rebounding albeit from a low level.
- US real estate—trouble (still) ahead? Some housing market indicators have stabilized, but downside risks continue due to weaker domestic activity. The outlook for commercial real estate remains negative, especially for the office sector.
- Making up for inflation—how Jane and Maxi can get their groove back. Investors holding a 60/40 portfolio of equities/bonds lost about ~20% on average last year; it will take them more than three years to fully recover their losses.
- Corporate performance—will inflation continue muting spending in 2023? Earnings have been weak for discretionary sectors, with EPS growth averaging -1.6% globally, though distributors and specialty retail performed significantly worse.
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