German Economy May Contract in 2024, Bundesbank Chief Says

(Bloomberg) -- 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.

Most Read from Bloomberg

“This year we’re not expecting any growth at all, or possibly even a recession, because the second half of the year seems to be significantly weaker than we thought six months ago,” Nagel said in Berlin on Tuesday.

The comments come just a day before revised government forecasts are 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 earlier in the day. “In particular, weak domestic and foreign demand and, above all, economic uncertainty are what characterize the second half of the year and that has surprised us a little more negatively than we 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. 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 stressed that “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,” he 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.”

Europe’s economy could face significantly less growth and more inflation, should Donald Trump win re-election as US president, Nagel said.

Victory for Trump “could be accompanied by drastic increases in tariffs, an expansionary fiscal policy and severe restrictions on immigration,” he said, adding that if implemented, “this could lead to noticeable losses in growth in the euro area and Germany.”

In the podcast, Nagel also urged highly indebted countries to consolidate their public finances.

“We have a stability and growth pact — it’s is about breathing life into it,” he said. “That must be at the top of the agenda of the new European Commission, to resolve the issue properly so that we don’t end up in a debt crisis.”

Still, he stressed that at the moment he deems such a crisis unlikely.

(Updates with comments in Berlin starting in second paragraph)

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.