The capital adequacy of German banks and savings banks is today much better than before the financial crisis. Whereas, in 2008, the average tier 1 capital ratio of German credit institutions came to 9%, it reached 16.6% in the second quarter of this year. Many banks that were less well capitalised prior to the crisis have raised this ratio by a particularly large extent.
Moreover, labor costs per unit of output – the single largest component of the unit cost of producing goods and services in the business sector – are essentially unchanged since 2007, owing to both moderate wage increases and solid productivity gains. I expect that nominal wage growth and labor costs will continue to be restrained by slack in resource utilization.