Holzmann expects the lockdown to only have a “moderate” braking effect on the economy
National Bank Governor Robert Holzmann expects the current lockdown to slow the economy only moderately.
It has been shown that the effect of lockdowns on the economy has diminished from time to time. But even if there were effects in the fourth lockdown, some of it would be compensated for in the next upswing. “You have learned to deal with the crisis,” said Holzmann.
With the next forecast due on December 22nd, Holzmann expects the OeNB to only slightly reduce its growth forecast: “You will probably not even have to make a smear test compared to the original forecasts, under certain circumstances, but it will probably work out a few tenths of a percentage point. “
At the presentation of the financial market stability report for the domestic banks on Wednesday, Holzmann praised the fact that they had raised an above-average amount of money from the ECB’s low-interest loan programs (TLTRO). 85 billion euros went to Austria, around 20 billion more than would be allotted to Austria according to the size of the economy. “This indicates that the Austrian banks have a very good management team that can work out that this is an interesting offer,” said the OeNB governor. For their part, the banks used loans to ensure sufficient liquidity for companies during the crisis and increased lending even in October.
For the banks, the first half of 2021 was the most profitable, at least since 2009. On the one hand, profits quadrupled compared to the first half of 2020 to 3.7 billion euros; on the other hand, the share of non-performing loans fell to just 1.9 percent in mid-2021, which resulted in very low risk costs. There are “certain uncertainties” in the risk figures for loans and the number of bankruptcies has recently risen slightly, but OeNB Vice Governor Gottfried Haber does not expect a wave of bankruptcies. There are catch-up effects, but they are still below the level from before the pandemic, he said at the joint press conference. In the Corona period, there were hardly any company bankruptcies due to government subsidies and the relaxation of insolvency rules.
The OeNB stress test, which was calculated before the fourth lockdown, assumed an even more dramatic economic development than is currently the reality. But even in the most negative scenario, Austria’s economy would be less affected than other economic areas and the domestic banks would lose “only” 5.1 percentage points of their core capital, but would still have 11 percent core capital. The banking system is also well equipped for a “hypothetical, severe economic downturn,” said Haber, and it remains stable. If the development remains unchanged, the scenario assumes a plus of 2.1 percentage points for core capital.
In view of rising inflation and low interest rates, the yields on 10-year government bonds currently have negative interest rates of almost 2 percent in real terms, which means that the investors’ money is ultimately worth less than when the bonds were bought. How this return can come back into the positive range is a “key question” for the economy, said Holzmann. But that does not depend on monetary policy, such as the key interest rate of the ECB. Rather, it is about an “equilibrium interest rate”, at which supply and demand in the financial markets are in equilibrium – and this has fallen to zero or below in the last few decades. It is up to politics to deal with issues such as productivity, the aging of the population or the savings overhang in the global North. These are very big problems “which we at the OeNB take very, very seriously and are also in the process of changing through our inputs in the ECB”.
tsk / ivn
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