joachim nagel : preparing for rising rates keynote speech by mr joachim nagel, president of the deutsche bundesbank, at the dz bank capital markets conference 2022, berlin, 11 may 2022. * * * 1 introduction ladies and gentlemen, it is a great pleasure for me to be here in berlin and to speak to you today. so, thank you for the invitation and for giving me this opportunity. unfortunately, the circumstances under which we meet here today are still very oppressive. the longer the war in ukraine lasts, the more death and suffering it will bring. at the same time, the economic consequences of the conflict are threatening to become more and more severe. as kristalina georgieva put it in her welcoming address for the imf spring meetings : “ we are facing a crisis upon a crisis, a war on top of a pandemic ; and it is like being hit by another storm before we have recovered from the last one. ” how strong the repercussions of the conflict with russia on economic activity in germany and the euro area will be is difficult to assess. in particular, they depend on the future course of the conflict. 2 implications of the war for economic activity sanctions against russia have already been extended several times. the world trade organisation has recently lowered its forecast for global merchandise trade growth to 3 % for this year, as against the forecast of 4. 7 % before the outbreak of the war. however, the war is not the only factor weighing on trade : the current wave of lockdowns in china is also disrupting supply chains. a complete halt to russian energy deliveries would pose a particular challenge to the european economy. last year, russia was the most important supplier of crude oil and natural gas for germany as well as for the european union. a delivery stop could substantially dampen the output of energy - intensive industries. furthermore, germany and the euro area are net energy importers. therefore, the sharp rise in energy prices is causing us to lose purchasing power relative to the rest of the world. this is costing us growth. one key factor for a sustained economic recovery will be the behaviour of private consumption. on the one hand, it could be supported by household savings. during the pandemic, households reduced their consumption because goods or services were simply not available. overall, they have built up a huge amount of “ involuntary ” savings, which could now be partly spent. according to our updated estimate, these savings in germany could have

peaked at about 180 billion euro in the first quarter of this year. in addition, governments are taking action to cushion the impact of energy price increases with support measures, not least for those most affected. on the other hand, high inflation is not only eroding households ’ purchasing power. high inflation and the uncertainties related to the war are also weighing on their confidence. surveys show that consumer sentiment has deteriorated considerably. households could be putting off purchases for precautionary reasons. the russian attack on ukraine has added new layers of risk. when the attack began, germany and the euro area expected a strong recovery from the pandemic crisis. in our baseline scenario, the impact of the war will depress economic growth. yet it is unlikely to derail the recovery. nonetheless, in the present situation of extraordinary uncertainty, more adverse scenarios also 1 / 3 bis central bankers'speeches have to be considered. in our latest monthly report, we published a macroeconomic simulation exercise. the study suggests that an escalation of the war in ukraine – including a full, immediate stop to russian energy deliveries – could cause the german economy to contract by up to 2 % this year. however, even if the scenario itself were taken for granted, this outcome would still be subject to high uncertainty. and it appears that the past weeks have been used to reduce germany ’ s dependence on energy imports from russia, which may dampen the impact of an embargo. 3 inflation outlook while russia ’ s invasion of ukraine is substantially dampening european growth prospects, it is additionally driving up already soaring inflation rates. mainly due to the rise in energy prices, inflation rates in the euro area have climbed to unprecedented levels. additionally, underlying price pressures have also strengthened considerably. in the euro area, the inflation rate stood at 7. 5 % in april. in germany, the rate as measured by the harmonised index of consumer prices even amounted to 7. 8 %. the last time german inflation rates were similarly high was in the early 1980s. in line with soaring energy commodity prices, higher transport costs and supply bottlenecks, import and producer prices have picked up sharply as well. this feeds through to consumer prices. here not only heating oil, gas or fuels have become more expensive but also food and other goods. services inflation also proved very dynamic as services were particularly affected by the measures to contain the pandemic. overall, price rises have become more widespread, and there is still considerable price pressure from