Finanzen / Bilanzen

Inflation meets currency weakness meets recession fears

The euro is only the equivalent of one dollar now, inflation will soon be rising to double digits, experts sound warnings of a recession and the loss of prosperity. A gloomy scenario – but there is hope: “At the moment we expect that things have to get worse before they will get better”, said Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM. “But the positive turnaround is set to come.”

Actually, it all started with the pandemic. A virus sent millions of people into lockdown, ploughing through economies and crumbling supply chains. Economies kept shrinking, people suffering. But thanks in part to the reactions by states and central banks, the pandemic’s consequences were cushioned. The pandemic finally lost its horror, the economy was able to recover. This approach required a lot of money that was usually granted as loans, created by central banks and widely distributed. Money was cheap, interest rates remained at or even below zero.

“The steps that were taken to combat the pandemic acted as a trigger for the current problems and fears in the economy overall and in the markets”, Gerlinger pointed out. “It is above all the European Central Bank’s belated change of course that is now causing further distortions.” The US Fed, on the other hand, had made it clear fairly early on that it intended to vigorously fight inflation. The ECB, however, waited, thus possibly missing the optimum moment and acting with the handbrake on. “Inflation is therefore likely to rise even more now – and, in addition, the euro will come under pressure”, Gerlinger added.

As far as the collective European self-esteem is concerned, it is difficult per se to see the euro on the same level as the dollar. On the other side of the coin, the weak euro makes European goods cheaper abroad, which may boost exports. “But we also continue to import inflation by way of higher prices for imports”, Gerlinger cautioned. “And this is true for private households and for businesses.”

Yet, businesses have remained unaffected so far. Many companies even reported record profits, frequently because they were able to collect scarcity premiums. In terms of operating profits, spring 2022 was the second best quarter ever among the 40 Dax corporations. But there are differentiations: While energy company RWE reported billion-euro profits, energy company Uniper had to be rescued by the state. And businesses may yet run into trouble: inflation and a lack of reserves are weighing on customers’ purchasing mood which could lead to declining sales.

Another myth has also been debunked: for a long time, economists expected that people simply were unable to spend their money in times of the pandemic, were therefore resting on high reserves and now wanted to use them for consumption. But statistics paint a different picture: neither was consumption held back to any major extent, nor are there particularly large reserves left. “And if there are any excess funds, they will mainly be used up for the next heating bill”, said Gerlinger.

In addition, the era of the 9-euro ticket is coming to an end in Germany so that those who are travelling by train will have to pay more. A gas levy is being introduced also so that in view of the continued high energy prices and the beginning of the heating season, this will cause a further price increase. This, in turn, will be used as a basic argument in tariff negotiations and lead to renewed price increases. “Inflation is far from being defeated, in fact we will see even higher levels”, Gerlinger explained.

It is therefore likely that the current uncertainty is set to continue, putting yet another damper on markets. “Fundamentally, however, many scenarios that are weighing down sentiment and the real economy are already priced in”, said Gerlinger. “So the next upswing may come even faster than expected.”

Additional information is available at www.moventum.lu

Über Moventum S.C.A

Moventum Asset Management S.A. (Moventum AM) is a wholly owned subsidiary of Moventum S.C.A. Since 2019 Moventum AM manages Moventum’s own funds of funds and individual mandates as part of its asset management portfolios.

As an independent financial service partner, Moventum S.C.A. has been providing a home for financial service providers such as advisors and asset managers as well as institutional clients from all over the world for more than 20 years. The digital "MoventumOffice" platform offers access to more than 10,000 funds, ETFs and other securities. In addition, it allows financial advisors to open securities accounts for their clients, to place trading orders and to use analysis, reporting and support tools. Institutional clients are able to outsource their entire fund trading with complementary services to Moventum as part of collective or individual custody account management. A variety of fund services are assumed for asset managers, ranging from registrar and transfer agent services to fund accounting, company administration and domiciliation services.

Firmenkontakt und Herausgeber der Meldung:

Moventum S.C.A
12, rue Eugène Ruppert
L2453 Luxembourg
Telefon: +352 (26154) 200
http://www.moventum.lu

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