The president of the Deutsche Bundesbank – Germany’s Central Bank – has warned that the German economy faces its own Doomsday Clock moment: saying it was ‘5 minutes to midnight’ for the country as a global economic force, after the bank posted its first loss in 45 years
Joachim Nagel made his comments in an interview with Bloomberg Television this week following the presentation of the Bundesbank’s 2024 Annual Report in Frankfurt.
The German economy – for decades considered the economic engine of Europe – has been rocked by high energy prices exacerbated by the war in Ukraine and the focus on green energy, in addition to deteriorating competitiveness, and demographic challenges.
Manufacturing has slumped, with capacity utilisation at lows comparable only to those seen during the financial crisis in 2008 and the initial Covid lockdowns. German industrial production remains about 10% below its pre-pandemic levels.
Earlier this month, luxury car manufacturer Porsche amounted that 1,900 jobs would be cut by the end of the decade – with reductions in overall staffing numbers by 15% by 2029 at its main sites in southwestern Germany, Stuttgart-Zuffenhausen and Weissach. The carmaker blamed “challenging geopolitical and economic conditions” and noted that its investments in electric vehicles had notably backfired, with weak demand prompted the firm to walk back its EV (electric vechicles) targets.
The latest figures on the German economy this week offered little comfort: with Fortune reporting that “weakness in manufacturing and exports pushed Germany’s economy into a contraction at the end of 2024.”
Output in Europe’s biggest economy slipped 0.2 percent from October to December compared to the previous quarter, in line with a preliminary estimate, complete figures from federal statistics agency Destatis showed.
The agency said that German economic output fell significantly in the fourth quarter of 2024, adding that “significantly lower exports and weaker industrial output weighed on the economy in particular.”
“The experts state that the latter declined in the fourth quarter, driven by the automotive industry and energy-intensive sectors. Excluding these two areas, production would have increased slightly,” Destatis said.
Joachim Nagal urged German political parties to move quickly to form a new government after last week’s lection, in order to help prevent the country’s fail to expand for a third straight year – the 2024 slippage followed a 0.3% decline in 2023 – while state-owned bank KfW have forecast a further 0.2% decline this year.
In what has been described as a “doomsday-style warnings over the German economy”, Nagal said that “Germany needs to fight for its competitiveness” – adding it was “five to 12” seemingly in reference to the Doomsday Clock usually used to warn of the likelihood of a man-made global catastrophe.
“Smart, consistent and reliable economic policymaking can unleash a sense of change and increase the willingness for greater investment. I therefore hope that we will have a government that will rouse “German Michel” from his slumber,” said Nagel, apparently in a reference to the U.S.’s patriotic fictional figure of Uncle Sam.
Commentators noted that Nagal’s gloomy warning came in the context of the Bundesbank announcing it had posted a €19.2 billion ($20.1 billion) accumulated loss last year, its first since 1979.
Most of the loss came from €13.1 billion charge – a negative balance – to interest income, which came about as the central bank received lower interest rates on its bonds compared to its expenditure which was necessitated by rising market interest rates.
Last year, Nagal also warned that the bank did not “expect to be able to distribute any profits for some time.”
However, the Bundesbank chief said he expected the central bank to recover this year but warned that for Germany, despite “a slight economic recovery” which he “expected over the course of the year”, in general “no meaningful upswing is in sight”.
He added that he believed there were clear structural problems in Germany’s economy, and that the incoming government needed to do more to prepare for the green transition and demographic change.