German economy facing bigger risks than investors may think: Bundesbank

FRANKFURT (Reuters) – Germany’s eight-year growth run has increased the chance that investors and households underestimate financial risk, increasing the economy’s vulnerability, the Bundesbank said in a regular stability report on Wednesday.

“There is a danger that low interest rates and the favorable economic conditions in Germany might cause market participants to underestimate risks,” the central bank said.

“Risks have built up, in particular, during the prolonged period of low interest rates – the valuations of many investments are very high, and the share of low-interest investments on the balance sheets of banks and insurers has risen steadily,” it added.

The bank sector is currently strong and able to cope with risks but low interest rates threaten their long term profitability, raising the incentive for them to take on more risk in hope of higher returns, the central bank added.

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