Households’ real portfolio return negative at the beginning of the year
Historically low interest rates on bank deposits and declining yields on securities have caused German households’ real total return to drift into negative territory again for the first time in six years. However, private financial wealth in Germany did not dwindle as savers actively continued to accumulate assets, which more than offset any portfolio losses. This is the finding of an article contained in the Bundesbank’s latest Monthly Report. In 2017, the real total return had still come to 1.4% on average. Temporarily negative rates of return had previously been recorded from 2001 to 2003 and in 2008.
The total return is made up of the rates of return on bank deposits, securities and claims on insurers. The rates of return are observed in real terms as the purchasing power of nominal returns varies with inflation over time.
Low interest rates curb total return
“The total return was curbed by returns on bank deposits in particular”, write the Bundesbank economists. At around 40%, bank deposits constitute the largest portfolio share. Since the end of 2016, the real returns on bank deposits have not been so deep in negative territory since 1991. Added to this were the price losses on the stock markets at the beginning of 2018. The only positive contribution in the first quarter of 2018, albeit a minor one, stemmed from claims on insurance corporations. “Given that inflation at the same time remained relatively stable at positive levels of between 1.5% and 2%, the real total return per se was reduced significantly”, the Monthly Report states. Inflation thus surpassed the positive, yet low, nominal portfolio return of the first quarter of 2018, causing the real total return to become negative.
No significant impact from changes in portfolio composition
According to the calculations by Bundesbank experts, the changes in the portfolio composition had close to no impact on total return developments. Such changes may be triggered by active portfolio shifts or by valuation effects in the case of securities. “Their negligible importance is consistent with the observation that, despite the persistent low-interest-rate environment, no major portfolio shifts were carried out by households”, write the economists.
Households’ financial wealth continues to grow
Contrary to total return developments in Germany, German households’ financial wealth continued to rise in the first quarter of 2018. While households’ financial wealth had come to €5,665 billion at the beginning of 2017, it had risen to €5,875 billion at the beginning of 2018, ie an increase of 3.7%. Adjusted for inflation, this still represents a growth rate of 2.2% in real terms.