Low interest rates spurring risky behavior: Bundesbank
Consumer spending helps Germany skirt recession in Q3
FRANKFURT: Low interest rates are prompting investors to take too many risks in some asset classes, the German central bank or Bundesbank warned yesterday. “There are incentives for investors to engage in riskier behavior in the current low-interest-rate environment,” Bundesbank deputy president Claudia Buch told a news conference on the presentation of the German central bank’s annual financial stability report. “The longer the period of low interest rates lasts, the greater the risk of exaggerations in certain market segments,” Buch said. “Signs of an excessive search for yield are particularly evident in the corporate bond and syndicated loan markets.”
While the US Federal Reserve and the Bank of England are considering when to begin raising interest rates, the ECB is looking to keep monetary conditions in the single currency area as accommodative as possible until recovery starts to take off. But that is raising concerns about possible asset-price bubbles, for example in the German property market. “So far, rising housing prices in Germany do not harbor excessive risks to financial stability,” Buch said. “We are keeping a very close eye on the real estate market. As soon as we detect risks to the financial system, we will act,” she said. The European Central Bank publishes its own financial stability report for the wider euro area later this week.
Consumer spending
Meanwhile, higher household and government spending enabled Germany, Europe’s biggest economy, to avoid a recession in the third quarter, official data showed yesterday. Increased exports also provided a boost, while falling investment acted as a drag on recovery, the federal statistics office Destatis said in a statement.
Confirming a preliminary estimate released earlier this month, the statisticians calculated that gross domestic product (GDP) expanded by 0.1 percent in the period from July to September.
In the preceding three months, the economy had shrunk by 0.1 percent. Recession is technically defined as two consecutive quarters of falling GDP. Providing a detailed breakdown of the different GDP components, Destatis wrote that “in the third quarter, positive impulses came primarily from private consumer spending, which increased by 0.7 percent. Government spending was also higher, rising by 0.6 percent.” In addition, exports were 1.9 percent higher than in the second quarter, climbing faster than imports, so that net foreign trade “made a slightly positive contribution to growth,” Destatis said. By contrast, investment declined, primarily in machinery and equipment, but also in construction, the statement said. — Agencies