Joachim Nagel at a change of office ceremony in Leipzig ©Christian Schneider-Broecker

Nagel: “Germany is facing major longer-term challenges”

Bundesbank President Joachim Nagel explained that economic activity in Germany was likely to gradually pick up some momentum. “We are expecting to see slight growth of 0.3% for 2024,” he said at a change of office ceremony at the Bundesbank’s Regional Office in Saxony and Thuringia. There were still no signs of a broad-based, sustainable recovery in industry, and consumers had been keeping their purse strings fairly tight so far, he remarked. But lower inflation rates and strong wage growth, combined with what remains a robust labour market, could spur an upswing in household consumption. And enterprises’ business expectations had brightened significantly of late, as well.

Economic and price developments still fraught with uncertainty

Nagel hailed last week’s decision by the ECB Governing Council to lower the key ECB interest rates for the first time since July 2022 as the right move but warned, we need to remain cautious. Future economic and price developments were still fraught with uncertainty, he observed, which was why the Governing Council emphasised again that decisions on the key ECB interest rates would continue to follow a data-dependent and meeting-by-meeting approach.

Nagel sees Germany facing major longer-term challenges. The first two challenges he mentioned in his speech were the need to decarbonise the economy and the ageing of society. Plus there was the matter of geopolitical tensions, which were difficult to predict but undoubtedly a major source of risk. All the more important, then, to have solid growth that would have to be achieved through strong productivity growth. This is a field in which Nagel sees a wealth of potential, especially in digital sectors. Digital upskilling and more investment in digitalisation across the entire value chain could help give productivity in Germany a significant boost, he argued at the event in Leipzig.

Feeble business dynamism is constraining productivity

However, fading business dynamism, an indicator measured by the number of firms entering and exiting the market, is another issue that gives the Bundesbank President cause for concern. Germany had seen both firm entry and firm exit numbers decline sharply over the past two decades, he noted. However, stronger business dynamism tended to be conducive to productivity growth and thus to expansion over the long run. In Germany, market entries and exits in 2023 were down by almost one-third – specifically, 30% – compared with 2004. This sharp decline partly explains why productivity growth is weak and receding in Germany, Nagel said at the change of office ceremony. The Bundesbank President sees the general ups and downs of economic activity as one factor behind the decline in market entries. Another drag on business dynamism was structural constraints, in particular demographic ageing. This, he argued, made it all the more important to support business dynamism by cutting excessive red tape, say, and improving access to funding sources. Nagel said that he is particularly keen to press ahead with the capital markets union in Europe, remarking, the further we make progress on these fronts, the sooner the challenges I have just mentioned will be able to emerge as opportunities – opportunities to boost innovation, economic momentum, future-proof jobs and stronger growth.

New President takes charge of the Regional Office

The Bundesbank President was speaking at a change of office ceremony at the Bundesbank’s Regional Office in Saxony and Thuringia. After 33 years of service at the Bundesbank, Hubert Temmeyer, President of the Regional Office in Saxony and Thuringia, will be retiring at the end of July. A doctor of economics, Hubert Temmeyer’s career included stints as Deputy Head of the Bundesbank’s International Monetary Affairs Division, secondments to the OECD in Paris and to the International Monetary Fund (IMF) in Washington, and the post of Regional Office President, which he took over eight years ago. Guido Müller, previously Director General Construction Management in Frankfurt, succeeds Hubert Temmeyer as President of the Regional Office.