The president of Germany’s central bank, which on Tuesday reported an annual loss for the first time in more than 40 years, said that Germany faced another year of economic stagnation, more gloomy news for a country that is struggling to grow.
“It is not possible to rule out a third year consecutive calendar year with no growth,” Joachim Nagel, the head of the Bundesbank, told reporters in Frankfurt.
The comments highlighted the economic challenges facing Germany’s next government. Voters on Sunday gave Friedrich Merz of the conservative Christian Democrats a mandate to form a new government, which he is hoping to do in coalition with the center-left Social Democrats.
The new government will inherit a 2025 budget with a 13 billion euro hole ($13.6 billion) and an economy riddled with structural problems, including high energy costs, a cumbersome bureaucracy and an export industry under pressure from rivals in China and the threat of tariffs by the United States.
The government, which will find it hard to borrow more because of strict rules on debt and deficits, cannot rely on any transfers from the Bundesbank, which sends its profits to the state.
Mr. Nagel was speaking after the release of the central bank’s annual report, which showed a loss of €19.2 billion last year, the bank’s first loss since 1979.
Since interest rates have risen, central banks around the world have faced losses stemming from the high interest they pay on deposits versus the low returns they receive from low-rate bonds bought during past crises. The Bundesbank stopped transferring money to the government in 2020, building reserves to offset losses.
Sabine Mauderer, the first deputy governor of the central bank, said that losses would continue, making the bank “unable to distribute any profit for an extended period of time.”
The Bundesbank stressed that it maintained a “sound” balance sheet, buttressed by some €260 billion worth of gold, which has recently soared in value. And despite the economy’s “stubborn stagnation,” Mr. Nagel pointed to Germany’s stable institutions, “adaptable” companies and skilled work force as strengths that would help the country return to growth.
But the past three years have been marked by political instability — or a “lack of political reliability,” as Mr. Nagel put it — that has rattled consumers and investors.
“Germany needs an effective government as soon as possible,” the central bank chief said, calling for “smart economic policy to enable the economy to get back on track.”
