Germany is not the ‘sick man of Europe’ – but this year isn’t looking good, central bank president says

People have a look at the banking district skyline with the Commerzbank constructing (2ndR) throughout sundown in Frankfurt am Main, western Germany, on September 25, 2023. (Photo by Kirill KUDRYAVTSEV / AFP) (Photo by KIRILL KUDRYAVTSEV/AFP through Getty Images)

Kirill Kudryavtsev | Afp | Getty Images

Germany is not the sick man of Europe, Bundesbank President Joachim Nagel informed CNBC on Wednesday, whereas acknowledging that progress is “not good for this year.”

Speaking from the IMF World Bank annual assembly in Marrakech, Morocco, Nagel mentioned we should not evaluate Germany’s present financial scenario with the interval when it was final described as “the sick man.” Analysts first coined the moniker in 1998 as the nation navigated the costly aftermath of a post-reunification financial system. 

“It’s a totally totally different, totally different scenario,” Nagel mentioned. “There are some structural modifications obligatory, but when you take, for instance the labor market, we’re nonetheless operating the financial system on full employment, kind of.”

“I imagine there is that understanding that we have to do one thing, but we’re not the sick man of Europe,” he added.

Debate has sparked over whether or not Germany ought to as soon as extra be described as the sick man, after Europe’s largest financial system was predicted to be the solely major European economy to contract in 2023.

“It’s not good for this year,” Nagel mentioned, “[but] for subsequent year progress is coming again.”

The Bundesbank forecasts the German financial system will develop by 1.2% subsequent year, up from the 0.3% decline it sees for 2023.

The International Monetary Fund holds a barely extra pessimistic view, estimating that Germany will expertise “continued weak spot” in its progress, and that its financial system will expand by 0.9% in 2024, in response to knowledge launched Oct. 10.

The IMF’s growth forecast for Germany lags behind the 1.2% common for the wider euro zone.

Inflation beast is ‘tamed’

Price rises in Germany slowed greater than anticipated for the month of September, with inflation, which is harmonized for comparability with different EU international locations, rising 4.3% towards the earlier year, federal statistics workplace data confirmed.

The quantity is the lowest month-to-month determine since Russia’s full-scale invasion of Ukraine and was pushed down by a below-average enhance in the value of power merchandise.

“The inflation story is moving into the proper course,” Nagel informed CNBC. “The beast is nonetheless there, but, to a sure extent, we’ve got tamed the beast.”

The inflation fee stays properly above the euro zone’s 2% goal and is prone to keep that method for a number of years, in response to a press launch by the Bundesbank in June. 

In the subsequent two years, inflation will likely be 3.1% and a pair of.7% respectively, the assertion mentioned.

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