Crisis in the Banking Sector Has Only Short-Term, Moderate Effects
ResearchSpecial Question of the April 2023 ZEW Financial Market Survey
Financial market experts estimate the effects of the recent tensions in the banking sector as moderate and only noticeable in the short term. Overall, they expect slightly negative effects on a six-month horizon and no effects on a two-year horizon for Germany, the eurozone and the USA. These are the results of the special question included in the ZEW Financial Market Survey in April 2023. A total of 172 financial market experts were asked by researchers at ZEW Mannheim about the short- and long-term effects of the current crisis in the banking sector.
“The recent tensions in the banking sector are likely to have a limited economic impact, both in terms of intensity and duration. However, they might be sufficient to make the monetary policy of the European Central Bank and the Federal Reserve slightly less aggressive in the coming months,” Thibault Cézanne, researcher in ZEW’s “Pensions and Sustainable Financial Markets” Unit, comments the result. “Many experts expect a negative impact on interest rates, but no negative impact on inflation. This possibly means that central banks may put more emphasis on financial stability than on fighting inflation in the short term following the events,” he adds.
Germany and eurozone hardly affected
A majority of respondents (around 54 per cent) assume that the tensions in the banking sector will bring no changes for German gross domestic product (GDP) in the coming six months. A total of 43 per cent, on the other hand, expect slightly negative effects. Inflation is also likely to remain almost unaffected by the events over the next six months. At around 64 per cent, a large majority of respondents do not expect any effects, while around 24 per cent anticipate slightly negative effects. Looking ahead over the next two years, a large majority say that no effects are to be expected on German GDP (75 per cent) and inflation (77 per cent). The picture is very similar for the eurozone. Looking ahead six months, a large majority of financial market experts expect the tensions in the banking sector to have no impact on GDP (55 per cent) or inflation (62 per cent) in the eurozone.
Impact on US economy the strongest
According to financial market experts, the tensions in the banking sector are likely to affect the US economy in particular, even if these effects are likely to remain rather short-term and moderate. Around 46 per cent and 45 per cent of respondents, respectively, expect the impact on US GDP to be zero or slightly negative over the next six months. Similarly, a majority of respondents of around 54 per cent do not expect a significant impact on US inflation in the short term. However, due to the tensions in the banking sector, a majority of respondents anticipate a slightly less aggressive monetary policy from the Federal Reserve in the short term. Around 52 per cent of respondents expect slightly negative consequences for the federal funds rate in the next six months. On the other hand, a large majority of participants expect to see no impact on US GDP (69 per cent), inflation (72 per cent) and the federal funds rate (64 per cent) over the next two years.
About the Survey
The ZEW Financial Market Survey has been conducted since December 1991. Participants are asked monthly about their expectations concerning the development of major international economies, including Germany, the eurozone, the United States and China. In total, the panel consists of about 350 financial analysts from banks, insurance companies and selected corporations, specifically from the finance, research and economics departments as well as the investment and securities departments. Most of the participants are from Germany.
The financial experts are asked about their expectations on a six-month horizon regarding the development of the economy, the inflation rate, short- and long-term interest rates, equity prices and exchange rates. In addition, they are asked to assess the earnings situation in 13 German sectors. Besides a fixed survey section, special questions on current topics are included on a regular basis. The ZEW Indicator of Economic Sentiment, which has established itself as an early indicator of economic development (“ZEW Index”), is calculated from the expectations of financial market experts on the development of the economic situation in Germany. The results are published and analysed in detail in the monthly ZEW Financial Market Report.
