00:00Is it now more likely that we actually have a recession scenario or could we have a reversal
00:06with growth picking up? Well, the expectation before the war was something like 1% growth for
00:13the German economy. Most forecasts have now downgraded this to 0.5. I would say there certainly
00:19is a risk that we are going towards stagnation. I wouldn't talk about a recession yet, but all of
00:25that depends on the further cause of the conflict in the Persian Gulf, of course.
00:31The Bundesbank sees a slight growth in the first two quarters of the year still. Do you agree?
00:40I would say, yes, we'll probably have some growth still in the first quarter. About the second
00:46quarter, I'm not sure. I mean, the economy could be even shrinking a little in the second quarter
00:54and, you know, the third obviously will depend on how things develop in Iran.
01:01Yeah, Mr. Fust, I mean, even if something happens in Iran with like a lasting ceasefire,
01:06it's unclear, especially when you look at the stock markets and the fact that they're gaining
01:10by so much, what the base case is. I mean, even if it stops tomorrow, how much is the overhang
01:15on energy prices and inflation in your mind?
01:21That's a critical question. We know that it'll take a couple of weeks, at least maybe months,
01:26for flows of oil and gas and other products to normalize. What we see in our data today is that
01:33increasingly there are supply bottlenecks for intermediate products emerging, not just with
01:38gas and oil, but also in the chemical industry, for instance. And it will take some time for that
01:45to normalize. So if we realistically expect the conflict to last at least one or two more months,
01:52I think normalization can not be expected before the autumn.
01:59Roy, is there anything that the government can actually do to try and help with the crisis,
02:02mitigate the crisis? It's really hard. So one thing the government can do, the German government
02:10and other governments can do, is try and stabilize consumer demand. But of course, there is a trade-off
02:17with fighting inflation. This is a supply shock driving up inflation. And so there is a trade-off here.
02:24I think what governments should do is try and take measures to stabilize demand, but not by cutting
02:32taxes on energy, just to make sure that there is adjustment in energy demand, but to avoid that
02:39this spills over too much to general demand for other products. Do you worry about stagflation?
02:48I mean, that's what we're clearly having now. It's exactly, you know, it's a textbook case of
02:53stagflation. We see companies telling us they expect prices to rise significantly. We see rising
03:01interest rates and we see a decline in economic activity. So it's the textbook case of stagflation.
03:06And we know that it's very hard for governments to respond to stagflation. They face unpleasant
03:13trade-offs, as do the central banks. They now face the trade-off between letting inflation happen
03:18and making the downturn worse by increasing interest rates. So it's a difficult situation to address.
03:25But Mr. Fuster, just so I understand, stagflation, I mean, is there a point where you can still get
03:31out of stagflation? And is there a worry that once it's entrenched, it's almost impossible to fix? And
03:36where are we now? I think we are at the beginning of a stagflationary shock. That's quite clear. So
03:44inflation is going to increase and economic activity is going to decline. Just by how much
03:50really depends on further developments in Iran. But we clearly are in a stagflationary situation at
03:56the moment. Do you worry that a lot of governments, including the German government, just don't have a
04:04lot of fiscal leeway to move? Well, the German government does have fiscal leeway and they have
04:13planned to increase debt finance spending on defense, debt finance spending on infrastructure.
04:20So that is stabilizing the economy. The German economy would be shrinking already if we didn't
04:27have this stimulus. Can they increase it by very much? I doubt it. But it should have an effect this
04:34year. For other governments, especially in Europe, it's more difficult because debt is higher in most
04:40other countries, France, Italy. So there is little fiscal leeway. At the same time, fiscal expansion
04:46is not necessarily the best response to stagflation because, you know, it does drive up inflation
04:54further and may force monetary policy to increase interest rates.
04:59special kind of investment. And we would also work on some of our local companies that have a lot of
04:59economic power to be underestimated. And only the good news is, you know, it's a lot of unsolage
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