Michael Heise, Chief Economist of Allianz, in an interview about the current state of the economy, stock market volatility and the future direction of the markets
Mr. Heise, share prices are plummeting and the German economy is hardly growing at all anymore. Are you worried about the future?

Michael Heise: The recent declines in the stock markets are more reflective of the uncertainties regarding economic policies. The financial health of companies, on the other hand, is predominantly good, as you can see from their semiannual financial statements. There is no reason to panic.

You are not worried that the global economy could fall back into a recession?
Heise: The weakening of world markets has been foreseeable for some time. At the moment, the stock markets are anticipating a recession, but I think that is too going too far.

But the latest numbers indicate that the German recovery is flagging.
Heise: No doubt, the German economy lost steam in the second quarter. Also, the business expectations of companies are not nearly as optimistic as they were just a few months ago.
But in view of the very low interest rates and the recent declines in commodity prices, we expect that the trend of moderate economic growth will continue in Germany for the rest of the year. Thanks to the strong start early in the year, we still expect the German economy to register economic growth of three percent in 2011.

That sounds very optimistic – especially in light of falling share prices.
Heise: In Germany, we are fortunate that share prices hardly have a direct impact on consumer spending. Traditionally, the Germans invest their retirement savings in life insurance policies and real estate, and not so much in stocks. That is why there has been a low correlation between share prices and economic growth in the past.
In the United States, on the other hand, share prices have considerable influence on the economy; when share prices are high, consumer spending traditionally rises, stimulating the economy.
The German economy is very robust right now. I am optimistic that it can overcome a brief spell of gloomy sentiment. Stock market volatility has increased in the last few years, but even then, share prices have always bounced back a little while after falling sharply.

So do you expect share prices to rise?
Heise: Once the current uncertainties regarding economic policy are resolved, the share prices will recover. I am certain of that.
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