Households have become more cautious in their spending intentions due to the COVID-19 pandemic. Many fear future losses in income as well. These are the initial findings of a survey published by the Bundesbank in two research papers.

Despite the coronavirus pandemic, there are no signs of an abrupt correction in house prices in Germany, according to the Bundesbank’s assessment. However, this is contingent on the economic recovery not being “seriously” disrupted. According to the latest issue of the Bundesbank’s Monthly Report, the pandemic has so far left little mark on the housing market.

German banks have seen their interest margin narrow during the negative interest rate period that began in 2014. Yet their profits remained stable up until the onset of the coronavirus pandemic. And there has been no evidence so far to suggest that German banks have been any less willing to grant loans, the Bundesbank writes in its latest Monthly Report. 

“Economic output in Germany is likely to have risen sharply in the third quarter of 2020,” the Bundesbank writes in its latest Monthly Report. As measured by quarterly gross domestic product, the German economy may have already recouped slightly more than half of the dramatic losses sustained in the first half of the year. According to the experts, there will probably be only a relatively small rise in economic output in the current quarter.

Bundesbank President Jens Weidmann has expressed unease about the EU’s extensive joint borrowing to fund the Recovery and Resilience Facility in response to the coronavirus crisis. “This kind of borrowing should remain a one-off crisis measure,” he said, arguing that permanently raising joint debt does not square with the EU’s institutional framework.

In the first half of the year, the coronavirus pandemic led to the most severe economic crisis in decades. The German financial system has, however, proven to be stable during the pandemic, and so far fulfilled its key functions, said Claudia Buch, Vice-President of the Deutsche Bundesbank, at the presentation of the 2020 Financial Stability Review. Ms Buch added that, in the further course of the pandemic, corporate insolvencies are likely to increase, and this requires sufficient preparation.

The Bundesbank is launching its third survey asking enterprises about their assessments and expectations during the coronavirus crisis. In addition to the economic situation, the survey also covers the development of inflation and assessments of climate policy issues.

Bundesbank President Jens Weidmann sees no reason to move away from the last monetary policy assessment at the moment and cautions against pre-empting decisions that are not yet on the agenda. “The monetary policy stance is appropriate at this time,” he told interviewers from the German “Börsen-Zeitung” newspaper.

According to Bundesbank Executive Board member Joachim Wuermeling, it is still too early to breathe a sigh of relief concerning the banking sector. “Economic activity is recovering, but the economic crisis only has a delayed effect on banks,” he said at an event in Berlin. Up to now, bank balance sheets had tended to be affected only in isolated cases by the coronavirus crisis. However, insolvencies can trigger credit defaults at short notice.

German banks’ profitability deteriorated further in 2019. However, this is due primarily to strategic restructuring at one big bank, the Bundesbank’s economists note in the latest issue of the Monthly Report, with the resulting negative one-off effect overshadowing the growth in profit for the financial year observed for all other categories of banks.