- 2022 marked the end of the era of negative interest rates. But the turnaround has not yet reached all parts of the economy. While interest rates for new deposits and loans to households followed the lead of central banks – though at a great distance – the overall impact on outstanding amounts is hardly detectable: In the Eurozone, interest rates on deposits increased by 4bps in 2022 over 2021, but continued to decline on loans, albeit by a meagre 3bps.
- Although the impact on the economic sectors is still muted, given different maturities, changes can already by detected. The government sector, borrowing predominantly on markets, is already starting to feel the pinch: Net interest payments jumped +19.8% to reach EUR207bn in 2022, the highest level since 2017. This is the result of the combination of slightly rising interest rates on liabilities (+20bps) and an even bigger public debt mountain (+4.7%). However, from 2008 to 2022, the government sector in the Eurozone remained one of the winners of the negative interest rate policy: Annual changes in net interest payments cumulate to total savings of EUR405bn.
- The corporate sector was the other big winner, but also had to cope with a rising interest bill in 2022: The plus of EUR11.6bn (+9.4%) brought net interest payments back to the pre-pandemic level. However, since 2008, its annual interest bill at the Eurozone level nearly halved to an estimated EUR136bn in 2022. Cumulated annual changes amount to a whopping EUR1,424bn.
- Private households in the Eurozone find themselves on the losing side of negative interest rates but the situation remained more or less unchanged in 2022. Over the years of negative interest rates, households’ net interest income plunged ever deeper into the red (-EUR 111bn in 2022), despite the facts that their asset overhang increased massively – debt restraint met strong savings – and that the interest rate differential narrowed in their favor. Cumulated changes amount to -EUR537bn. This happens when yields on your asset holdings drop close to zero (0.5% in 2022).
- The other big loser is financial companies, mainly banks. However, the turnaround already arrived: Net interest income rose by +7.8% or EUR 33bn in 2022. The reason for this is the slight improvement in margins (+2bp) – which can move the needle, given the sheer size of the sector’s balance sheet. Since 2008, however, their net interest income declined by EUR114bn to an estimated EUR460bn in 2022; cumulated changes amount to a whopping -EUR1,281bn. The main culprit was the shrinking margin as the interest rate differential narrowed to the sector’s detriment.
- Adding up all sectors by country leads to some surprising results. The biggest one: Germany has benefited from the era of negative interest rates to the tune of 6.6% of GDP. The main reason for this is the massive savings of the government sector. So be careful what you wish for. Like the preceding era, the following years of normalization in which the interest rate turnaround will increasingly be felt by all economic actors may produce some unexpected winners and losers, too. The marathon to adjust to higher rates has just begun.
The long Goodbye to zeronomics and its implications for the private and public sector
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Lina Manthey
Allianz SE
Allianz SE
Kathrin Stoffel
Allianz SE
Allianz SE