Higher interest rates, higher inflation, higher economic growth – according to the experts at Union Investment, a sustainable new environment for investing has emerged.

"This year in particular has shown how important international investment is," said Frank Engels, the board member responsible for investment, during the fund company's risk management conference in Mainz.

The year 2022 brought losses in almost all asset classes, looking back it was one of the few years in which both stocks and bonds performed poorly.

"Basically, only currencies and energy were safe havens," and here he mentioned the dollar and the Swiss franc, for example - the dollar in particular has appreciated significantly in value over the course of the year to date, for example against the euro,

Alexander Armbruster

Responsible editor for business online.

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In the short term, Engels expects a recession in the western world, albeit not a severe one.

At the same time, the decline in economic output in the United States will be less than in the European Monetary Union.

He thinks inflation may have peaked, especially in America.

Engels assumes that the most important central banks will nevertheless raise interest rates further.

For the European Central Bank, he forecasts a rate hike of 0.75 percentage points in December and a base rate of 2.75 percent in the coming year.

The American Fed will also raise key interest rates further to a level of 4.5 or 4.75 percent - in his view, however, the dollar currency watchdogs will end their hikes earlier than their European colleagues and wait and see

"Great Transformation" means stronger economic fluctuations

Engels, who recently returned from DWS to the fund company of the Volks- und Raiffeisenbanken and was promoted to the board there, warned against overly large state spending programs and generally too far-reaching public authorities.

"Financial policy must not be too expansive, the strong state will get us into quite a bit of trouble if the central banks want to fight inflation." How this can go wrong has only just become apparent in Great Britain - there the Bank of England intervened in the market, to prop up UK pension funds, which were reeling from announcements by the now-resigned Truss government.

It is important that monetary and financial policy are well coordinated.

After the high rates of inflation and the noticeable increase in interest rates this year, Engels sees comparatively good opportunities in the coming year, especially on the bond market, and in the currency area both the euro and the Japanese yen could do better and correct some of the losses in value suffered against the dollar.

And he is also cautiously optimistic about the stock market, although he is assuming a return in the single digits.

"In any case, the valuation correction due to interest rate developments has been completed," he said, adding that a lot of bad economic news was priced into this year's price losses.

In principle, Engels expects that a new environment for capital investments will have established itself in the longer term.

After the phase from 1985 to 2019, which they describe as the "Great Moderation" with rather low but continuous economic growth and falling interest rates, the world has been in a "Great Transformation" since 2020.

This will be characterized by stronger economic fluctuations, structurally higher interest rates and higher economic growth, especially in the United States.

They cite the growing tensions between Washington and Beijing and, in general, a politically and economically more fragmented world order as reasons.

Supply chains would be restructured, production would be relocated.

"A lot more must and will be invested in this," says Engels.