The president of Germany’s central bank announced on Tuesday that the institution reported an annual loss for the first time in over 40 years, indicating that Germany is facing another year of economic stagnation.
Joachim Nagel, head of the Bundesbank, stated, “It is not possible to rule out a third consecutive calendar year with no growth,” during a press conference in Frankfurt.
This statement underscores the economic challenges that the incoming government will confront. Following recent elections, Friedrich Merz of the conservative Christian Democrats has been tasked with forming a new government, likely in coalition with the center-left Social Democrats.
The new administration will inherit a 2025 budget featuring a 13-billion-euro ($13.6 billion) deficit and an economy burdened with structural issues, such as high energy costs, a cumbersome bureaucracy, and an export sector facing competition from China and potential tariffs from the United States.
Due to stringent regulations on debt and deficits, the government will find it difficult to increase borrowing and cannot rely on financial transfers from the Bundesbank, which typically contributes its profits to the state.
Mr. Nagel's comments followed the release of the central bank’s annual report, which revealed a loss of €19.2 billion last year, marking the bank’s first loss since 1979.
Central banks globally have encountered losses as interest rates have risen, leading to higher costs for deposits compared to the low returns from bonds acquired during previous crises. The Bundesbank ceased transferring funds to the government in 2020 to build reserves against losses.
Sabine Mauderer, the first deputy governor of the central bank, indicated that losses would persist, rendering the bank “unable to distribute any profit for an extended period of time.”
Despite these challenges, the Bundesbank emphasized that it maintains a “sound” balance sheet, supported by approximately €260 billion in gold, which has recently increased in value. Mr. Nagel pointed to Germany’s stable institutions, adaptable companies, and skilled workforce as potential strengths for economic recovery.
However, the past three years have been characterized by political instability, which Mr. Nagel described as a “lack of political reliability” that has unsettled consumers and investors.
“Germany needs an effective government as soon as possible,” he stated, advocating for “smart economic policy to enable the economy to get back on track.”