Mounting borrowing at the European level could end up leaving national indicators such as the deficit and debt ratios less informative in the future, the Bundesbank warns in the current issue of its Monthly Report. This is why complete and transparent statistical reporting also needs to be ensured at the European level, the Bank’s experts argue.

The Bundesbank expects the German economy to grow strongly again after a limited setback in the final quarter of 2020 and first quarter of 2021. According to current projections, real gross domestic product could pick up sharply in the following two years and reach its pre-crisis level again in early 2022. This is predicated on the pandemic containment measures being quickly loosened from spring 2021 and ultimately expiring altogether in the early months of 2022.

The Governing Council of the European Central Bank (ECB) used its meeting on 10 December 2020 to adopt a comprehensive package of monetary policy measures in response to the economic fallout from the resurgence of the coronavirus pandemic in the euro area.

According to Bundesbank President Jens Weidmann, central banks should beware of crowding out private payment solutions and should play a supportive role instead. Mr Weidmann pointed out that competition and regulation are essential for a good market outcome. As central banks provide the backbone of the payment system, they need to be at the cutting edge of technology, he explained. This, he emphasised to participants of a Bundesbank virtual conference, includes working on central bank digital currency.

Bundesbank President Jens Weidmann has spoken out in favour of central banks taking adequate account in their risk management of climate-related financial risks that could arise from their monetary policy operations. He argues it is therefore legitimate to expect better information to be provided. 

In its Monthly Report, the Bundesbank’s economists write that the German economy recovered rapidly in the third quarter from its slump in the wake of the coronavirus pandemic. However, they are not expecting the catch-up momentum to continue into the final quarter of 2020 due to the resurgence of the pandemic. On the other hand, they do not expect economic output to slump to a similarly subdued level as in the second quarter, either.

The Bundesbank invited civil society organisations to a virtual event in order to listen to their views on issues relating to the Eurosystem’s monetary policy strategy. Bundesbank President Jens Weidmann thanked the participants for their contributions and announced that he would raise the insights gained in the ECB Governing Council’s deliberations.

Given the massive increase in government debt in the euro area, Bundesbank President Jens Weidmann has warned of the risk of fiscal dominance. He sees a risk that political pressure could arise and grow to keep interest rates low for the long term. In a streamed speech, he therefore said that “We need to make it very clear that we are not going to place monetary policy at the service of fiscal policy. If we create a different impression, we are putting both our independence and our credibility at risk.”

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.