Europe’s largest economy is set for contraction on the back of soaring inflation, energy supply bottlenecks and the disruption to global supply chains, Deutsche Bank AG chief executive officer Christian Sewing said yesterday.
“We will no longer be able to avert a recession in Germany,” Sewing said in a speech in Frankfurt, Germany. “We believe that our economy is resilient enough to cope well with this recession — provided the central banks act quickly and decisively now.”
The crisis triggered by Russia’s invasion of Ukraine hit a new peak when Gazprom PJSC this month announced that it is suspending gas flows through its biggest pipeline to Europe indefinitely. The EU is racing to come up with ideas to keep the gas crisis from turning into an economic meltdown, and energy ministers are set for an emergency meeting in Brussels tomorrow.
Photo: Reuters
“The longer inflation remains high, the greater the strain and the higher the potential for social conflict,” Sewing said.
The European Central Bank is set to sharply increase interest rates when it meets today, with economists expecting a rise in the benchmark cost of borrowing of as much as 75 basis points.
Sewing has said that a full stop of Russian gas deliveries would tip Germany into a recession.
Several lenders, including Commerzbank AG, have said they would need to ratchet up credit provisions under the scenario, even though they expect government support to mitigate the hit.
Sewing said he expects an increase in credit defaults to take place eventually, although the lender was not seeing them yet and did not expect them to affect profitability.
Sewing said that supply bottlenecks and the energy crisis had rammed home that Germany needs to limit reliance on other countries.
“We must not allow ourselves to add a further dependency — access to finance — to our current dependencies on gas, raw materials and supply chains,” he said. “We must not leave the playing field, and with it the access to global capital markets, largely to foreign banks.”
European consolidation is needed to achieve that goal, he said.
“The above points are not new, but they are becoming more urgent,” he said.
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