FRANKFURT, Nov 25 - Germany is experiencing a prolonged period of economic weakness, according to Bundesbank President Joachim Nagel. He noted that the country's economy has been stagnant for two and a half years, with a bleak outlook due to lackluster export demand and a recession in its oversized industrial sector.
In a recent speech, Nagel indicated that stagnation is expected to continue into the final quarter of this year, potentially resulting in negative growth. He emphasized that while weak growth may suppress consumer prices, caution is necessary regarding interest rate cuts by the European Central Bank (ECB).
Wage growth remains a concern, and underlying inflation is still high. Additionally, Nagel warned that trade policies from the new U.S. administration could introduce inflationary pressures. He advocated for gradual monetary policy adjustments rather than swift changes.
The ECB has already reduced interest rates three times this year, with a fourth reduction anticipated on December 12. Market speculation suggests a 40% chance of a larger cut of 50 basis points, rather than the usual 25, reflecting the current economic climate.
By the end of next year, the ECB’s deposit rate is projected to decrease to 1.75%, below the neutral rate, indicating market expectations for further central bank stimulus.