Free Trial

MNI INTERVIEW (RPT):ECB Needs To Steer Expectations-ZEW Chief


(Repeats article first published on May 26)

Lack of clarity over European Central Bank policy is accentuating uncertainty over inflation, the president of the ZEW think tank told MNI in an interview in which he also warned that Germany would plunge into deep recession without supplies of Russian gas.

While the median expectation is for German prices to increase by 3.5% next year, the Mannheim-based ZEW's Achim Wambach said the range between expectations was high.

“In the survey among financial experts, we see a large variation in their replies. This phenomenon points to a problem in ECB’s communication strategy. The ECB should do more to steer expectations in their communication and with their actions,” he said, speaking as policymakers debate whether to hike rates by 25 or 50 basis points in July. (See MNI SOURCES1: ECB Seen Making Two To Three 25-BP Hikes In 2022)

The outlook generally for Germany’s economy is also hard to predict, with questions not only over the immediate future of Russian gas supplies but longer-term challenges as well arising from a structural shift higher in energy costs and more troubled relations with key market China.

“The main uncertainty comes from the war in Ukraine, how long it will last, and whether it will lead to oil and gas embargoes. If there is no embargo we should experience a growth rate of around 3% this and next year, but if there is a gas embargo it will be -2.5% in 2023,” said Wambach. “The German government has decided not to go for a gas embargo, but it’s not only up to them to decide. So there is a risk, which cannot be ignored.”


While China’s economic slowdown is now the biggest concern in ZEW surveys, helping to depress sentiment indicators which fell sharply upon the invasion of Ukraine, the country might face an even tougher situation in the event of an interruption of Russian gas supplies. Germany might have to ration gas, said Wambach, calling for more preparation for such a contingency, with account taken of market principles.

“We have formal rules that will determine the rationing, but these do not include economic incentives,” he said.

In the longer term, the Ukraine war and strained relations between the west and China have significantly complicated the outlook for Europe’s largest economy, which was already facing the need to “reinvent” its fossil-fuel-based automotive sector and move towards alternative energy and autonomous vehicles, said Wambach, though he expressed optimism about the ability of German companies to find new markets.

“We used to have cheap energy from Russia. We used to profit very much from China - many leading German companies made a lot of their growth in China. And we delegated our security concerns and expenditure to the USA. These tailwinds have stopped,” he said. “I expect we will have to live with more expensive energy. We will invest more in security. We will continue to do business with China, but companies and the state will have to manage their dependencies much better.”

Germany’s export-oriented companies should be able to compensate for the question marks over China by expanding in other markets, such as South America and other parts of Asia, said Wambach.


In a less secure world, economies such as Germany may have to restore domestic manufacturing capacity for some key products, Wambach said, although that would mean some sacrifices elsewhere.

“It may make sense to reshore in some areas. But more importantly, we should start a much stronger debate about how we can diversify better, also globally,” he said, adding “it doesn’t make sense that the EU’s trade agreement with Canada, CETA, hasn’t yet been fully ratified.”

While the inflation outlook is cloudy, German wage increases look like being relatively moderate, he said.

“My expectation is that they are mostly negotiating for short-term contracts. I don’t think we will see extreme results; we will see decent increases, for shorter time periods,” Wambach said.

MNI London Bureau | +44 20 3983 7894 |
MNI London Bureau | +44 20 3983 7894 |

To read the full story



MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.