War and inflation dampen mood in German insurance industry

The first ‘mood barometer’ of German business since the outbreak of war in Ukraine unsurprisingly finds increased uncertainty in the insurance industry. The mood barometer was carried out by highly regarded Munich-based economic research body the Ifo Institute. Commenting on the findings, the German insurance association GDV said: “The Russian war of aggression in Ukraine led to a significant slump in sentiment in the insurance industry in the second quarter. In the current Ifo business survey, the business climate index fell by 6.5 to 4.4 points. The value indicates the balance of positive and negative assessments and is now again below the long-term average of 14. The same applies to the sub-index for business expectations, which even dropped by 9.6 to 11.2 points.” The latest survey took place in April and May, and was the first mood test after the outbreak of war in Ukraine. “The concern among insurers has increased again [on fears] that the already existing bottlenecks in the supply chains will not be rectified so quickly. At the same time, the sharp rise in inflation – also as a result of the war – is dampening the mood in the insurance industry,” noted the GDV. “Life insurers in particular are therefore looking to the future with more concern. Their business expectations for the coming six months collapsed even more than those of the entire sector. Because high inflation means that private households are holding back their money and are more likely to save on things that are supposedly dispensable, such as old-age provision,” continued the insurance association. The GDV said things are looking slightly better for property-casualty insurers. “Although they still rate their current business situation as negative, they are very optimistic about the future. Almost a third of the companies (around 32%) expect the general conditions to improve in the next six months. This is mainly due to the fact that executives expect less damage than 2021, which was marked by the July floods,” it stated. Last week, the Ifo Institute reported that Russia’s attack on Ukraine, coupled with sharply rising energy prices, is curbing economic recovery in Germany. The institute has reduced its forecast for economic growth this year to 2.5%, down from 3.1% estimated in March. For next year, Ifo Institute now expects an acceleration to 3.7%. It predicts that inflation in Germany will rise to 6.8% and then drop to 3.3%, although not until next year. “Economic output is currently still 1% below the pre-pandemic level of late 2019,” said Timo Wollmershäuser, head of forecasts at Ifo Institute. “But we’re expecting a gradual decrease in both commodity prices and material bottlenecks in the second half of the year.” Wollmershäuser added: “At the beginning of the year, high prices led to a loss of purchasing power among private households and in turn to a decline in goods consumption.” But thanks to a noticeable rise in spending on services, overall private consumption remained stable in the first quarter, he added. The Ifo Institute predicts that unemployment will drop from 2.6 million to 2.3 million this year, or from 5.7% to 5%. Next year, unemployment is expected to remain stable. The Ifo Institute added that the hole in Germany’s budget is forecast to be cut in half this year, from €131bn to €65bn, and will shrink to a mere €12bn next year. “Much criticised internationally, the current account surplus (exports, imports, services, transfers) will drop to €181bn this year, down from €265bn in 2021. For 2023, the Ifo Institute once again forecasts a surplus, this time of €241bn,” it added.

War and inflation dampen mood in German insurance industry

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