(Bloomberg) — The German economy is likely to regain strength as several sources of recent weakness prove short-lived, Bundesbank President Joachim Nagel said.
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Some of the factors holding back growth, including high inflation, cautious consumers and high interest rates, are likely to be only “temporary,” Nagel said in a speech Tuesday, while acknowledging that there are some longer-term structural issues that need to be addressed.
“We therefore assume that the German economy can slowly get going again,” he said, although growth “will remain weak this year.”
The comments come amid growing fears that Europe’s largest economy is in recession and that a quick recovery is not imminent. The Bundesbank previously warned that a contraction in the third quarter was possible after a 0.1% fall in the second.
The latest S&P Global composite Purchasing Managers’ Index, released Monday, supported such an assessment, falling to 47.2 — higher than expected and well below the 50 threshold that separates growth from contraction.
The Ifo Institute’s monthly measure of business expectations also fell on Tuesday.
Germany’s disappointing performance is weighing on the eurozone’s 20 countries, with an early-year recovery fading. That’s fueling speculation that the European Central Bank will cut rates again in October, rather than waiting until December.
Nagel said Germany faces “extensive structural challenges” — energy security, climate policy, too much bureaucracy and a lack of skilled workers are examples. But he stressed that these difficulties can be overcome.
“There is no doubt that we are in a difficult process of change,” Nagel said. “But we can shape it. And if we design it well, then I say very clearly: No, from my point of view, Germany is not in decline!”
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