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Insurance chief economists expect high inflation to persist until the end of 2023

How do the great crises of our time impact our economic situation? What's in store for the insurance industry? That was the focus of our latest #GDVlive episode.

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While inflation has eased a bit recently, Germany will be facing elevated inflation rates well into the coming year, according to some of the leading economists in the insurance industry. “In 2023, inflation will fall but even by year-end it will most likely still be around 3 to 4 percent”, Munich Re chief economist Michael Menhart said on an online panel hosted by the GDV.

In the US, inflation has peaked according to Menhart, but not in Europe. Here, he expects the tide to turn in the spring of 2023. “I am not overly optimistic. Germany needs to face the fact that inflation might remain higher than it would like it to be”, said Menhart.

Rate hikes are expected to continue until May 2023

Ludovic Subran, chief economist at Allianz, expects inflation to remain in double digits over the winter. That is why he predicts the ECB to raise rates by 50 or even 75 basis points (bp) at its policy meeting in December and to follow up with three 25bp hikes in 2023 taking the policy rate to 2.75 percent by May.

GDV CEO Jörg Asmussen, who was hosting the panel, agreed with that basic assessment. The markets were positioned for a rather “slow and not very long monetary tightening”, he said. 

Allianz's Subran doesn't expect the policy rate cycle to peak before the year after next. “We don't expect to see the first rate cut until 2024”, the chief economist at Allianz said. The crises we are currently witnessing, especially the Ukraine war as well as high inflation and rising energy prices, are “a big stress test for Europe”, he added.

Warning about “structural stagflation”

Jérôme Haegeli, chief economist at Swiss Re, even went a step further and called the current environment a “big stress test” for the global economy. According to Haegeli, the mild recession that is headed our way is not even the worst thing but rather “the lesser of two evils”, the other one being structural stagflation, i.e. high inflation coupled with stagnant growth, which is a lot more dangerous.

That is why Haegeli is calling on the ECB to tighten monetary policy now, adding that the central bank's low-interest-rate policy of the past years had been a “tragedy”. For the time being, he does not expect the ECB to pause its rate hikes. “We are about half way through the rate cycle”, Haegeli said.

In 2023, all three chief economists see geopolitical risks as the biggest challenge, above all the war in Ukraine but also the relationship between the US and China.

Watch the chief economists panel here in german

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