German economy could stagnate again this year, Bundesbank says

The next German government is inheriting an economy that could stagnate for a third straight year, Deutsche Bundesbank President Joachim Nagel warned Tuesday.

“It is not possible to rule out a third consecutive calendar year with no growth,” Nagel said at a press conference. “This makes it all the more important that the new federal government swiftly take effective measures.”

Nagel welcomed what he said was “a clear government mandate and a likely option for a coalition” from an election this past Sunday. Friedrich Merz, leader of the center-right Christian Democrat bloc in parliament, is set to open talks with the center-left Social Democratic Party with a view to forming a government in the coming days.

Europe’s largest economy has shrunk slightly for the last two years in a row. High energy prices, the green transformation and demographic change are putting the export sector under particular pressure, Nagel said, adding that high taxes and increasing bureaucracy are making the situation worse.

“Smart, consistent and reliable economic policymaking can unleash a sense of change and increase the willingness for greater investment,” Nagel said.

Elsewhere, Nagel tried to downplay speculation on how far and how quickly the European Central Bank can continue to cut interest rates, after five cuts in the last eight months that have brought the key deposit rate down to 2.75 percent from a record high 4 percent.

“In the current uncertain environment, there is nothing to be gained from publicly speculating on where we might stand, in terms of our interest rate policy, in summer or at the end of the year,” he warned.

Nagel was speaking at a press conference to present the Bundesbank’s annual report for 2024, which showed another heavy loss of €19.2 billion due to after-effects of a decade of quantitative easing followed by a sharp rise in interest rates. Nagel said losses will continue for some years yet, but should narrow from now on.