(Bloomberg) — German output may have shrunk slightly in the first quarter, according to Bundesbank President Joachim Nagel, who graded Europe’s biggest economy a four out of 10 but cautioned against excessive pessimism.
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Addressing a citizens’ forum in the eastern city of Leipzig, Nagel described 2024 as “rather difficult” and said there’s a lot of work to do to improve the situation.
“But we shouldn’t make ourselves worse than we actually are,” he said Wednesday. “The sentiment in the country might be worse than the actual data.”
A contraction at the start of 2024 would bring a first recession since Covid struck. The economy has been struggling for more than a year, raising questions about the future of Germany’s manufacturing industry after the war in Ukraine cut off supplies of cheap Russian energy.
The malaise is dragging down the rest of the euro zone. Data earlier Wednesday confirmed that the 20-nation economy stalled in the final months of 2023, with growth hovering around zero now for five quarters.
The Bundesbank had said it expects Germany to “stagnate at best” between January and March — an outcome analysts also predict.
For 2024 as a whole, the government is set to revise down its growth forecast to 0.2% from 1.3%, according to Economy Minister Robert Habeck.
Nagel said Germany must improve competitiveness to shake off its current troubles, citing issues with high taxes and bureaucracy.
The remarks are similar to a warning last week from Finance Minister Christian Lindner that Germany is getting poorer because of its failure to generate economic growth.
“We also have to take care of our democracy more,” Nagel said in reference to the rise of the far-right AfD party, which now ranks second in opinion polls after soaring inflation curbed voters’ purchasing power and an influx of refugees from Ukraine stoked anti-immigrant sentiment.
(Updates with more quotes from Nagel in last three paragraphs.)
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