Deutsche Bank Warns of Potential Stagflation Risks Similar to 1970s
Parallels between Current Economic Conditions and the 1970s Oil Crisis
Deutsche Bank analysts, including Henry Allen, have recently conducted an analysis drawing parallels between the current economic landscape and the 1970s oil crisis, which led to a period of stagflation. They highlight the geopolitical instability today, particularly in light of the escalating conflict between Hamas and Israel, as reminiscent of the 70s.
Rising Tensions and Global Economic Crisis Concerns
The rising tensions between Hamas and Israel have raised fears of a potential global economic crisis similar to the stagflation era of the 70s. During that time, the world experienced high inflation rates and a significant drop in GDP growth. Allen expresses concerns that these trends might reoccur in this decade. Additionally, the 70s saw major oil price shocks due to Middle East wars, further contributing to worldwide inflation.
Indicators and Escalating Inflationary Worries
Present indicators, such as above-target inflation across all G7 countries, sharp energy price spikes, and escalating industrial unrest, are adding to concerns of a potential crisis. The recent surprise attack by Hamas on Israel caused oil futures to spike, reaching a session high of $87.39. The CL1:COM also hit a yearly high of approximately $95 per barrel, further fueling global inflationary worries.
Potential Impact of El Niño Event and InvestingPro Tips
Allen emphasizes the potential effects of an El Niño event this year, which could raise food prices, echoing a similar situation in the 70s. InvestingPro Tips suggests that Deutsche Bank (DBKGn) has promising figures, with a low P/E ratio and undervalued shares. However, the bank needs to improve its weak gross profit margins.
Differing Views on Middle East Conflict and Future Consumer Prices
Jonas Goltermann from Capital Economics does not expect the current Middle East conflict to significantly affect oil prices as past wars did. Allen cautions against potential over-optimism about future consumer prices, noting the underestimation of inflation persistence.
Decrease in U.S. Energy Intensity and Ongoing Inflation Concerns
Allen highlights the decrease in U.S. energy intensity over the years, attributing it to factors such as vehicle efficiency standards. However, despite efforts to resolve post-pandemic supply chain issues and falling commodity prices, Deutsche Bank warns that inflation remains high in all G7 countries. Unexpected shocks could rapidly send it even higher, mirroring the 1970s recession where persistent wage increases contributed to inflation.
Profitability of Deutsche Bank and InvestingPro’s Premium Offerings
InvestingPro Tips suggests that Deutsche Bank is expected to be profitable this year as a prominent player in the Capital Markets industry. The bank has consistently increased its earnings per share and has been profitable over the last twelve months. However, net income is expected to decrease this year. For more detailed insights and tips, investors can explore InvestingPro’s premium offerings.
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