2023-06-14 15:58:39
In the past year, the European Central Bank (ECB) was supported by broad approval of interest rate hikes – this no longer seems to be the case everywhere. When the inflation rate in the euro area was more than 10 percent, there were very few voices against higher interest rates – now that seems to be changing. Recently, for example, it was the trade unions that called for an interest rate pause in the euro area before the June meeting of the ECB Council this Thursday. In a survey, many companies in Germany also spoke out against further interest rate increases.
“The ECB should not turn the interest rate screw too high,” said the first chairman of IG Metall, Jörg Hofmann, on Wednesday. “The economy is in a difficult situation, the higher interest rates have already put a damper on the construction industry.” Higher investment costs also endanger the necessary socio-ecological transformation of the industry: “Further interest rate hikes are also of little help in combating inflation.”
“Higher interest rates slow demand”
The Confederation of German Trade Unions (DGB) sees things similarly. “We warn the ECB against further rate hikes,” said board member Stefan Körzell. “Higher interest rates are slowing down demand and the economy, driving Germany into a recession unnecessarily.” The most recent collective bargaining agreements by the unions were good, but did not endanger the ECB’s price stability goal, said Körzell in view of warnings of a wage-price spiral.
Sebastian Dullien, economist at the Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation, which is close to the trade unions, also advocated an interest rate pause by the ECB. “The details of German May inflation numbers indicate that the decline in inflationary pressures is broad-based and cuts across many key commodity categories,” Dullien said. Energy prices have meanwhile risen much more slowly than prices overall. Fuels have even become cheaper year-on-year and are now curbing inflation. Food inflation has also eased significantly from its February high of more than 20 percent to less than 15 percent.
The trend of weakening inflation can be observed not only in Germany, but also in the euro zone as a whole, said Dullien: “Since inflation is foreseeable developing in the direction of the ECB’s target of 2 percent, but at the same time the strong interest rate increases of the past few months full effect only with a time lag, the ECB should now take a break with its interest rate hikes and wait and see how things develop.”
Construction industry particularly critical of interest rates
Apparently, not every company is enthusiastic about rate hikes either. In any case, in a survey by the credit insurer Atradius, 31 percent of the companies surveyed said they were against a further increase in key interest rates by the ECB. In addition, 26 percent of the companies surveyed believe that the monetary policy of the central banks is hindering the economy. 57 percent of the companies surveyed were of the opinion that the economy was at least “partially” hampered by the high interest rates. The construction industry in particular is complaining about the significant increase in key interest rates. “This is very dramatic for the construction industry,” said one of the companies surveyed. As a result, the construction industry plus the supplier industry “totally collapsed”, judged another company from the construction industry.
Nonetheless, a majority of economists seem to think that the ECB will hike rates further, by 0.25 percentage points, and that this is the right thing to do. According to a survey of economists by the Bloomberg news agency, they see the ECB on the right path for the next few weeks: Many expect two more interest rate hikes, in June and July, before the central bank could possibly take a break. In a market report, however, Deutsche Bank does not rule out the possibility that further interest rate hikes beyond July may be necessary.
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