German economy may contract in 2024, Bundesbank chief Nagel says
Economic uncertainty prevents consumption in the country from picking up as expected, even as real income gains
THE German economy is likely to experience another year of contraction with the US election posing an additional risk to Europe’s growth, said Bundesbank president Joachim Nagel.
“It will probably be the case, as the federal minister of economics predicted, that the second half of the year will be weak, and it cannot be ruled out that we will have a slight recession in 2024,” Nagel added on Tuesday (Oct 8).
He has also noted that he is “worried” that a return of Donald Trump as US president could bring more protectionism and trade restrictions.
“That of course isn’t good for global economic growth overall and that is difficult and challenging for Europe,” the central bank president added.
The comments come just a day before revised government forecasts are expected to show the economy stagnated or even contracted in 2024, sources said. Germany was the only Group of Seven economy to shrink in 2023.
The Bundesbank itself predicted 0.3 per cent 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.
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“Unfortunately, even a Bundesbank president isn’t always right and may have seen things too rosily,” Nagel said.
“In particular, weak domestic and foreign demand and, above all, economic uncertainty are what characterise 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, he noted. “People are unsettled, companies are unsettled. This mix of circumstances simply contributes to companies and people holding on to their money.”
The central bank chief urged highly indebted countries to consolidate their public finances.
“We have a stability and growth pact – it 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. BLOOMBERG
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