The growth prospects for Europe’s largest economy remain bleak.
The next German government will inherit an economy that could stagnate for the third consecutive year, warned Joachim Nagel, president of Deutsche Bundesbank. Nagel positively assessed the clear mandate from voters and the potential for a coalition government formed after the elections on Sunday.
It is expected that Friedrich Merz, leader of the Christian Democratic Union (CDU/CSU), will begin negotiations with the Social Democratic Party of Germany (SPD) to form a government in the coming days.
Germany’s economy has shrunk for two consecutive years. Among the key factors putting pressure on the export sector, Nagel cited high energy prices, ecological transformation, and demographic changes. Additionally, the situation is exacerbated by high taxes and growing bureaucracy.
The head of Bundesbank also warned against excessive speculation about further interest rate cuts in the eurozone after five reductions in the past eight months, which brought the key rate down from 4% to 2.75%.
At the press conference, the Bundesbank’s annual report for 2024 was presented, showing a significant loss of €19.2 billion. This was attributed to the aftermath of years of quantitative easing and the sharp rise in interest rates. According to Nagel, losses will continue for several more years but should gradually decrease.
