The president of the Bundesbank Joachim Nagel said that the German economy has the inherent strength to bounce back from the twin shocks of the pandemic and the war in Ukraine. His comments come after the IMF projected a 0.1% contraction of Germany’s GDP in the year 2023.
The key concern with the German economy has been the energy crisis sparked by the war in Ukraine. The German output was reduced by 0.4% last year due to the crisis. The IMF believes that Germany will be the second worse performing Economy amongst the developed countries in Europe, right after the UK.
However, Nagel allayed these concerns by pointing out that the energy crisis is almost over and that the German industry was highly adaptable. He said that the German Banking sector was robust and strong and he does not see the German economy in recession this year.
Although, according to the IMF, the German economy will show positive growth only in 2024 by 1.1%[1]. The purchasing manager’s index showed that Germany’s manufacturing showed a steep fall in activity, the lowest in the last three years. Manufacturing accounts for a fifth of the German economy.
Nagel stated that the country had been taking corrective measures for its energy supply and reducing its dependency on Russian LPG. Germany had done so by increasing its storage capacity and buying LPG from other sources.
Meanwhile, the European Central Bank has hiked its interest rate by 50 basis points bringing its rate to 3% in order to grapple with inflation.
Nagel is considered to be one of the Hawkish members of the ECB governing council. According to him, while the council should continue to fight inflation, it should also look at the impact of higher interest rates on certain sectors of the economy and take corrective measures if required.
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