BERLIN: The German economy is likely to experience another year of contraction with the US election posing an additional risk to Europe’s growth, according to Bundesbank president Joachim Nagel.
“This year we are not expecting any growth at all, or possibly even a recession,” Nagel said in Berlin.
“This is because the second half of the year seems to be significantly weaker than what we thought six months ago,” added the banker.
The comments came a day before revised government forecasts were expected to show the economy stagnated or even contracted in 2024, according to people familiar with the matter.
Germany was the only Group of Seven economy to shrink in 2023.
The Bundesbank itself predicted 0.3% growth in June, but it already said last month that gross domestic product may have stagnated or fallen in the third quarter, following a slight drop in the prior three months.
“Unfortunately, even a Bundesbank president isn’t always right and may have seen things too rosily,” Nagel told the Table Media podcast.
“In particular, weak domestic and foreign demand and, above all, economic uncertainty are what characterise the second half of the year.
“And this has surprised us a little more negatively than we initially thought a few months ago.”
Uncertainty is also the reason why consumption is not picking up as expected, despite real income gains, Nagel said.
“People are unsettled, companies are unsettled,” Nagel said.
“This mix of circumstances simply contributes to companies and people holding on to their money.”
Speaking at the German central bank’s annual reception in Berlin, Nagel said: “We cannot be satisfied with potential 2025 growth rates of around 1 % – that’s definitely not enough.
“We need to focus more on strengthening economic growth again,” the Bundesbank president said.
“The federal government’s growth package – if implemented as it is – is certainly a start, but in the end it can’t and won’t be enough to actually trigger the necessary net investment.” — Bloomberg
