##ary monetary policy, and greater regulatory flexibility – all of these are extraordinary factors that are not covered by the models. models, including mathematical models, have their uses. however, especially in highly uncertain times of economic upheaval, model results must be interpreted with caution. additional shocks followed. geopolitical tensions are impacting future global economic relations ; russia ’ s invasion of ukraine has necessitated a paradigm shift in terms of security and energy policy ; addressing climate change is an urgent concern. scenarios that were once considered “ adverse ” have now become a reality. inflation in germany, which stood at 6. 9 % last year and, most recently, 7. 6 % in april, remains considerably too high. [ 16 ] in the past year alone, interest rates have risen by around 300 basis points. for the sake of comparison, the calculation of the basel interest rate coefficient assumes an increase in interest rates of 200 basis points. in the short term, the german economy appears relatively robust. germany ’ s gdp is expected to record a slight increase of 0. 4 % in 2023. [ 17 ] the pandemic and the energy crisis have barely dented the financial situation of enterprises. this is true even of energyintensive sectors – thanks to an array of economic policy measures and, more recently, energy prices dropping back again. corporate profits rose significantly last year. during this period of unexpected shocks, the financial cycle continued to expand. the financial cycle differs from the business cycle : during the expansion phase, lending goes up and asset prices rise, risk appetite increases ; when it reaches the downward swing, this can hit the real economy hard. lending has risen sharply in recent years. loans to the private sector stood at around 82 % of gdp at the beginning of the pandemic, compared with 87 % today. [ 19 ] the stock of housing loans peaked at almost 42 % of gdp in 2020, although the pace of new lending has recently slackened significantly, in keeping with higher market interest rates. banks ’ capitalisation actually rose during this period. by recent counts, german banks have surplus capital of around €165 billion in cet1 [ 21 ] – that ’ s around €36 billion more than at the start of the pandemic. [ 22 ] with vulnerabilities having built up in the system at the same time, the federal financial supervisory authority ( bafin ) announced a package of measures at the start of 2022 that, from february 2023,

change. we are facing grave dangers ahead and the rise in temperature must be limited to 1. 5 degrees celsius for us to even have a fighting chance. the financial sector is a massive consumer of energy and digitalisation can, to some extent, reduce the global carbon footprint. sustainability is attracting attention from all stakeholders and the time is now ripe to embrace sustainable principles. if you miss the sustainable bus, it will be at your own perils. at the level of the bank, we launched our climate change centre last year to speed up the transition to a greener financial system. we are fortunate that we are able to meet physically in mauritius due to the easing of travel restrictions. i seize this occasion to encourage the foreign participants to take some time out of their schedule to visit the island. with these words, i thank you for your attention. 5 / 5 bis - central bankers'speeches