(Bloomberg) -- Germany’s economic contraction in the spring should be a “wake-up call” and the government must now implement already announced measures to boost growth and improve the debt brake, Bundesbank President Joachim Nagel told Frankfurter Allgemeine Zeitung.
“We are dealing with an economic situation that is characterized by strong headwinds,” he was quoted as saying. “Current company reports make it clear that certain sectors are under pressure and need to take countermeasures.”
Nagel called the ruling coalition’s growth initiative the “right steps,” but said that now it must move “from words to deeds.”
“We need to focus on growth and make it more attractive to invest again,” he said, also suggesting the debt brake could be reformed “moderately.”
Gross domestic product unexpectedly shrank by 0.1% in the second quarter — dashing hopes that Europe’s biggest economy can finally leave behind years of stagnation. Investment and consumer spending were big drags.
The fact that Volkswagen AG is considering unprecedented factory closures in its home market — part of a fight for survival for the country’s most important industry — adds to the gloom.
“As a large export economy, Germany is particularly affected by the current geo-economic changes,” Nagel said. “We supply a lot to China, so any slowdown in economic development there hits us particularly hard.”
Nagel added that uncertainty among consumers and firms also plays a role.
“The German government’s growth initiative is heading in the right direction: reducing tax progression, cutting red tape, better write-off options for investments, but also measures to strengthen incentives to work,” he said. These measures “must now be implemented after the summer break.”
Nagel said it’s “particularly important that politicians clearly show where the journey is heading — if there is reliability here, then companies will invest more again.”
©2024 Bloomberg L.P.
