Agency Report –
The head of Germany’s central bank, Joachim Nagel, believes the German economy may be able to avoid a third consecutive year without growth.
A “slight increase in overall economic output” could be possible this year Bundesbank President Nagel said on Monday at the Frankfurt Euro Finance Summit.
In its economic forecast published at the beginning of June, the Bundesbank had predicted stagnation for this year. However, Nagel said this forecast had not taken into account the fact that economic growth in the first quarter was stronger than initially estimated.
At the end of May, updated figures showed that Europe’s largest economy grew by 0.4% in the first three months of the year.
“For the German economy, the end of the long dry spell is on the horizon,” said Nagel. “However, the path does not lead us directly to a green oasis, but remains challenging – between growth-damaging tariff effects and growth-promoting fiscal policy.”
Economists expect that a massive spending package for infrastructure and defence will boost the economy from 2026 at the latest.
Nagel argued however that “spending money alone is by no means enough. Sustained higher growth in Germany can only be achieved if structural adjustments are made at the same time.”
In addition to US President Donald Trump’s erratic tariff policy, however, there are other uncertainties, Nagel said, citing the conflict in the Middle East as one example.
“Should there be a prolonged, serious conflict, oil prices, for example, could rise considerably. The economic outlook could then change noticeably compared to what I am telling you today – both in terms of the economy and prices,” he said.
Nagel said was confident that inflation would “stabilize at 2% and that we will thus achieve our medium-term inflation target.”
Nagel, who is one of the key figures on the European Central Bank’s Governing Council, said: “Even if inflation in the eurozone is back at around 2% and is likely to return to this level in the medium term after a dip, there is no reason to ease up on monetary policy.”
By Jörn Bender
