Brighter Economic Horizon: Bundesbank Chief Sees Slim Chance of Rebound by 2025
projected minimal economic expansion forecast around the year 2025, as per the Bundesbank's president's remarks. - Economic recovery potentially achievable by 2025, asserts Bundesbank President.
Joachim Nagel, President of Germany's central bank (Bundesbank), hinted at a glimmer of hope for the nation's economy, suggesting a slight growth possibility in 2025 if certain conditions are met. Speaking at the Frankfurt Euro Finance Summit, he pointed out hisinitial early June forecast, which predicted stagnation for 2025, did not factor in the stronger-than-expected growth in the first quarter, which stood at 0.4 percent.
"The German economy is winding down its prolonged slump," Nagel stated. "However, the journey ahead remains fraught, navigating between growth-limiting trade effects and growth-promoting fiscal policy."
Despite the positive prediction, Nagel stressed that 'spending money alone' is not the answer; simultaneous structural adjustments are necessary to achieve sustained higher growth. Economists generally anticipate the planned multi-billion euro investments in infrastructure and defense will boost the economy at the latest by 2026.
There are numerous uncertainties, beyond the erratic trade policies of US President Donald Trump, that could potentially affect the economic outlook, including the Middle East's ongoing conflict and its impact on oil prices.
Nevertheless, Nagel expresses optimism concerning the long-term stabilization of inflation at 2 percent, allowing the achievement of the Bundesbank's medium-term target. However, he advises against hastily easing the European Central Bank's (ECB) monetary policy posture, highlighting the importance of maintaining flexibility to respond to economic developments.
Insights:
- In early June 2025, Nagel forecasted stagnation for the German economy, but a slight growth possibility has emerged due to a stronger-than-expected first-quarter growth of 0.4 percent.
- Nagel emphasizes that Germany needs simultaneous structural adjustments to achieve sustained higher growth, beyond just investing money.
- Economists expect the planned multi-billion euro investments in infrastructure and defense to boost the economy by 2026 at the earliest.
- ECB officials have been advised to await further economic developments and not rush into easing monetary policy.
- As reported by Bundesbank experts, the fiscal policy measures' immediate effect on the 2025 economy is limited due to ongoing clarification of implementation and funding.
- While inflation has the potential to temporarily fall below 2% next year due to lower energy prices, it is unlikely to remain under the target for an extended period, as service costs remain high.
- External risks include the ongoing conflict in the Middle East, with prolonged tensions leading to sharp increases in oil prices and a significant shift in the economic outlook.
Nagel's Predictions for Economic Growth in 2025:
- Weak Growth or Stagnation: In early June 2025, Nagel indicated that the outlook for the German economy points to weak growth, with risks of stagnation.
- Slight Increase Possible: At the Frankfurt Euro Finance Summit on June 16, 2025, Nagel said a "slight increase in overall economic output" could be possible in 2025.
- Projected Growth Rate: Analysts now forecast Germany's economy will grow by around 0.2% in 2025, marking a return to expansion after two years of contraction.
EC countries could benefit from adopting employment policies that emphasize vocational training, considering the importance of structural adjustments in achieving sustained economic growth highlighted by Nagel. Until businesses witness substantial growth in 2026, due to planned multi-billion euro investments in infrastructure and defense, it might be prudent for them to manage their finances cautiously.
