Aurelia Butler

German house prices fell at a record rate of 6.8 per cent in the first quarter of this year, as higher borrowing costs, inflation and weaker economic growth took their toll on Europe’s largest property market.The year-on-year fall in the index of German residential property prices was the biggest since records began in 2000, the federal statistical office said on Friday.Falling house prices are the latest sign of trouble in the German residential housing market, where housebuilding is also slowing. Just 21,200 flats were approved for construction in April, 31.9 per cent less than a year before. That was the biggest decline since March 2007. However, there were signs the downturn in house prices was slowing, as prices fell 3.1 per cent from the previous quarter, a smaller decline than the 4.9 per cent drop between the third and fourth quarters.“Lower demand due to higher financing costs and the persistently high inflation are probably still the main reasons for the decline in purchasing prices,” the statistical agency said.“The German housing market has gone from being a seller’s market to a buyer’s market, and transactions have almost come to a standstill,” said Carsten Brzeski, a Frankfurt-based economist at Dutch bank ING. “The official price index is almost a fiction because it is based on so few new transactions.”Franz-Bernd Grosse-Wilde, chief executive of Spar- und Bauverein eG Dortmund, a housing association in the Ruhr city, said uncertainty over new regulations such as measures to improve the energy efficiency of homes had made “investments in real estate unattractive”. “People who might have thought about investing in property five years ago are now uncertain because they don’t know what refurbishment obligations they’ll soon be facing,” he said.

The statistical office said prices fell in the first quarter in both cities and rural areas, although they had dropped more sharply in urban areas. The biggest declines were in Germany’s seven biggest cities — Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf — where prices for single- and two-family houses were down 10.4 per cent and those for flats fell 6.4 per cent.Prices also fell in sparsely populated rural areas: those for single- and two-family houses dropped 7.8 per cent and those for freehold flats declined 5.3 per cent.Experts said the data shows that many Germans can no longer afford to buy a house or flat, leading to fewer real estate transactions. Demand for mortgages has been in decline since May 2022, though there was a slight recovery in March.The best rate for a new 10-year mortgage worth €190,000 on a property worth €352,000 has risen from 0.43 per cent at the start of 2021 to 3.39 per cent, according to Dr Klein, a German mortgage broker.Monthly repayments on a typical German 10-year mortgage of €300,000, worth 80 per cent of a property, reached €1,505 in May, an increase of more than €300 from a year earlier, the broker said. More

The eurozone economy has slowed sharply, according to a closely watched business survey which indicated that a period of recent growth in the services sector is stalling and price pressures are cooling.The benchmark purchasing managers’ index, a measure of activity in manufacturing and services, fell to a five-month low of 50.3 on Friday’s data, down from 52.8 in the previous month. It was below the 52.5 reading forecast by economists in a Reuters poll.By dropping towards the 50 mark that separates contraction from expansion, the result dampens hopes of an economic rebound in the 20-country single currency zone after two quarters of mild contraction.“This is a severe slowdown,” said Carsten Brzeski, an economist at Dutch bank ING. “It shows the ECB forecasts were utterly over-optimistic. We are clearly heading for another weak quarter, with a possible flirtation with recession again.”The European Central Bank had forecast gross domestic product in the bloc would grow at 0.9 per cent this year despite the past two quarters of 0.1 per cent falls. This was widely seen as too optimistic and economists said the PMI data made it almost certain the forecast would be cut in September. “These data aren’t pretty,” said Claus Vistesen, an economist at research group Pantheon Macroeconomics, adding that the figures were consistent with eurozone growth remaining “subdued” in the second and third quarters of this year.The biggest surprise in the HCOB flash eurozone composite PMI data was the sharp slowdown in the services sector, which has been one of the few positive areas of the eurozone economy for much of this year.The slowdown was especially sharp in France, where activity levels among services companies contracted for the first time since the start of the year. This contrasted with the UK services sector, which slowed less and remained firmly in expansion territory in June.This could strengthen the case among the more dovish policymakers at the ECB for the central bank to be more cautious about further interest rate rises beyond the one in July they have already signalled is “very likely”. Investors responded by betting that the ECB would not raise rates by as much as they previously thought. Germany’s two-year government bond yield, which moves inversely to its price, fell 10 basis points to 3.12 per cent. The euro fell almost 1 per cent against the dollar to $1.085.Price pressures have continued to ease, the survey showed, with input costs for manufacturing companies falling at their fastest rate since July 2009. This suggests the recent decline in eurozone industrial producer prices, which fell 3.2 per cent in the year to April, is likely to continue.However, what will still worry ECB rate-setters is that input costs continued to rise for services companies at well above the historical average pace, “buoyed in particular by wage pressures”, said S&P, which runs the survey. Workers’ wages in the bloc rose more than 5 per cent in the year to the first quarter, while unemployment fell to a record low of 6.5 per cent in April, which ECB officials fear is likely to keep services inflation high.Eurozone inflation has fallen from a peak of 10.6 per cent to 6.1 per cent in May and next week new data is expected to show a further decline to 5.7 per cent. But the ECB is likely to focus on the core rate, stripping out energy and food, which is expected to rise from 5.3 per cent in May due to an acceleration of services prices.Separately, German house prices fell at a record rate of 6.8 per cent in the first quarter of this year, as higher borrowing costs, inflation and weaker economic growth took their toll on Europe’s largest property market. More

(Reuters) -Greece is heading into an election weekend with its public debt trading near the levels enjoyed by first-class peripheral countries, a decade after a debt crisis forced a dramatic reshaping of its borrowing.The premium investors demand to hold Greek debt instead of that of top-ranked peripheral countries such as Spain is narrowing and could even vanish completely as its debt profile has improved and its economy enjoys the support of European funds for years to come.At the end of the crisis, Greece’s private sector was completely under-leveraged, with one of the lowest loan-to-deposit ratios among advanced economies and a deep investment gap compared with the rest of the euro area, Bank of America (NYSE:BAC) said recently.Furthermore, almost 80% of central government debt is in the hands of the official sector, with a weighted average maturity of close to 20 years and stable servicing costs.The country has received three international bailouts from the euro zone and the IMF worth 280 billion euros ($308 billion) since 2010. It emerged from its latest bailout programme in August 2018, and has since relied on the debt markets to cover its borrowing needs. “All these factors justify a narrower spread, or no spread at all (versus Spain),” said Athanasios Vamvakidis, global head of G10 forex strategy at BofA.”The Greek (bond) market is not so liquid and tends to be more volatile, but we have a lot of good news. We cannot say prices are fictitious,” he added.The Greek economy is still heavily exposed to volatile sectors like tourism or shipping, but it is less sensitive to manufacturing headwinds.Political stability is also crucial. Under a new electoral system, the winner of the June 25 vote can receive bonus seats, so if New Democracy led by Greece’s conservative leader Kyriakos Mitsotakis broadly repeats its May performance, it will likely secure a clear majority. The premium, or spread, of Greek government bond yields over those of Spain recently fell to its lowest since 2008 at around 27 basis points. Across southern Europe, only Portugal and Spain trade at a smaller premium to Germany – the euro zone benchmark – than Greece. Analysts think peripheral spreads generally could widen, as those bond prices have rallied recently. But the medium-term outlook for Greece is still positive. Goldman Sachs (NYSE:GS) expects Greece’s debt-to-GDP ratio to fall by 10 percentage points a year and to drop below Italy’s in 2026 as they forecast a small Greek primary balance surplus coupled with strong economic growth. It says that even in its worst-case scenario, which includes an economic contraction of around 1 percentage point, or a widening of 100 basis points in the yield spread over Germany would not blow Greece too badly off course in terms of bringing down the debt ratio.By the end of this year, Greece’s debt-to-GDP ratio is expected to fall to around 160% while Italy’s is seen at 142%, according to official estimates.”The combination of low sensitivity to policy rates, thanks to financial assistance programmes still in place, and the investment boost of the European Recovery Fund (about 3% of GDP yearly) provide unprecedented support for the Greek economy,” said Filippo Taddei, European economist at Goldman Sachs.The gap between Italy’s and Greece’s spreads over Germany hit zero in November 2019, but it widened significantly after the May election in Greece.”The key to why the Greek yield spread is lower than Italy’s is because Greece basically does not have any refinancing needs in the coming 10 years due to the measures taken 10 years ago during the sovereign debt crisis,” said Piet Haines Christiansen, director of fixed income research at Danske Bank.Italy’s Prime Minister Giorgia Meloni has presented herself as a good European citizen, sticking to former prime minister and former ECB boss Mario Draghi’s reform agenda. “However, this credit may be wearing thin as the government refuses to sign up to ESM reform and struggles to unlock NGEU funds,” said Christoph Rieger, head of rates research at Commerzbank (ETR:CBKG), referring to the EU support funds. Italy is the only country dragging its feet over approving the treaty that reviews the so-called European Stability Mechanism (ESM) due to concerns it could trigger a restructuring of Italy’s own public debt.Ratifying the reform of the euro zone bailout fund could nevertheless boost the credit standing of the European Union’s most indebted countries, an Italian Treasury document seen by Reuters showed on Wednesday. ($1 = 0.9104 euros) More

Kenya’s president has called for the creation of a global green bank separate from the World Bank and IMF, warning that traditional multilateral lenders were “hostage” to rich world interests and unable to solve the climate crisis.William Ruto, who was elected less than a year ago, told the Financial Times the new non-aligned bank could help to close a shortfall of trillions of dollars needed to halt global warming. “We are in a crisis situation,” he said. He was speaking as world leaders met in Paris to discuss reforming the global financial system, including the World Bank and IMF, to free up cash to address climate change and ease the debt burden on developing countries.“We need to hammer out in this Paris agreement that we need a new financial mechanism to deal with climate change that is not controlled by a shareholder or is not subjected to the interest of any country,” he said in an interview.Ruto said the new “mechanism”, which would be akin to a global green bank, should be funded by green taxes and levies applied globally.This could include taxes on financial transactions and fossil fuels or levies on shipping and aviation, which could raise between $1.5tn and $2tn a year, he said. While France has pushed for a levy on emissions from shipping, conversations on other global climate tax initiatives have been inconclusive.A World Bank paper in 2022 estimated that introducing a levy or other measures to impose a price on greenhouse gas emissions from shipping could generate $60bn in revenues a year.Ruto said he had discussed his proposal with international leaders including French president Emmanuel Macron, who is co-hosting the summit with Barbados prime minister Mia Mottley. Macron was only lukewarm, or “comme ci, comme ça”, on the idea of a new green bank, Ruto said.But the whole of Africa backed his suggestion, he claimed, while China, which has become the single biggest lender to the developing world in recent years, was aware of Kenya’s position.Ruto, who last month suggested African leaders could ditch the US dollar to facilitate trade within the continent, is due to meet Chinese president Xi Jinping later this year to discuss topics including climate change.Ruto is part of a growing cohort of voices from lower- and middle-income countries criticising the World Bank and the IMF. Mottley last year set out the so-called Bridgetown Initiative to push for the transformation of the global financial system. “We need to fix the system,” she told the FT this week. Ruto said a new bank operating independently of traditional financial architecture was key to ensuring that countries such as Kenya did not accrue huge debt in seeking to cut emissions and transform their energy systems.Nations including Kenya pay far more to borrow money than their western counterparts, creating a vicious cycle of debt, he argued.He said Africans “don’t want to end up” paying “eight times more” to borrow than richer countries. “We want to pay equal to everybody,” he said.Kenya, east Africa’s economic powerhouse, spends about $5bn a year on debt repayments. Ruto’s predecessor, Uhuru Kenyatta, borrowed heavily from Beijing. Keen to avoid the route of Zambia and, most recently, Ghana, Ruto, who is generally friendly to the west, has promised to avoid a debt default. While Ruto questioned the role the IMF and World Bank can play in tackling climate change, he argued that these bodies should be reformed. On top of existing initiatives, these institutions should spend $500bn annually on refinancing high-cost debt held by developed countries, he said.Speaking at the summit, Macron emphasised the need to address poverty and rising temperatures simultaneously.“The first principle is that no decision maker, no country, should ever have to choose between reducing poverty and protecting the planet,” he said.Additional reporting by Andres Schipani in Nairobi More