Vienna (OTS) – Austria’s companies have made good use of the pandemic break in the summer and the economy is on the up. However, this economic upturn has an impact on inflation and interest rates. Financial expert Dr. Michael Grahammer, Partner at BDO, explains how these important factors may develop.
“Although many economists had forecast a rapid recovery of the economy with falling corona numbers and the easing that this made possible, the erratic jump in demand, the scarcity of many goods and the resulting price increases were surprising. As a result, inflation in many European countries is already well above the targeted target of 2% at the beginning of autumn, ”says Michael Grahammer, summarizing the situation.
“Some economic researchers argue that prices will stabilize again and the inflation rate in Austria will level off at 2-2.2% in 2021 (possibly slightly above it in the EU). A decline is expected for 2022. Personally, I think a sustained increase in Austria is conceivable, ”emphasizes the financial expert. Because the price increases are far beyond 2% in many areas. For example, building costs rose by 12% compared to the previous year until June 2021 alone, producer prices rose by 7%, and wholesale prices by almost 11%. In addition, many industries recorded historically high demand and utilization that is likely to continue for months. The increased costs are likely to affect consumer prices only in the course of the annual price talks (e.g. for food prices), i.e. the price increase is delayed. The same applies to new awards in the construction sector and their consequences for property prices. Incidentally, demand for residential real estate is not expected to normalize as long as the interest rate environment remains unchanged and the banking supervisory authority does not tighten any regulatory requirements or the tax authorities decide not to tax real estate assets. “From my point of view, there is a lot to suggest that the prices will rise significantly more at least over the next two years than the current forecasts would suggest,” emphasizes Michael Grahammer.
What does this mean for the interest? “Well, at the long end, the interest rate level has already moved up significantly from the lows,” said Michael Grahammer. While the 10-year EUR swap was around -0.3% pa six months ago, it is now -0.059% pa – around 25 basis points higher. In contrast, the 3-month EURIBOR has hardly changed in the same period and is currently around -0.54% pa This is unlikely to change much in the short term, especially since price effects in Austria have no influence on the interest rate environment. If, on the other hand, the overheating of the real estate markets increases and inflation in Europe is sustained and well above 2%, it will show whether the ECB will not be forced to at least promise an end to bond purchases and a normalization of interest rates. “From this point on, significantly higher returns and interest rates can be expected. We therefore recommend our customers and customers to critically question their own interest rates today and to use the still favorable interest rate for long-term hedging ”, concludes Michael Grahammer.