Germany’s central bank, the Bundesbank, reported an annual loss for the first time in more than four decades on Tuesday, marking a concerning financial milestone. Joachim Nagel, the bank’s president, warned that the country could face another year of economic stagnation, further compounding challenges for a nation struggling to regain growth.
“It is not possible to rule out a third consecutive calendar year with no growth,” Nagel told reporters in Frankfurt, highlighting the tough economic conditions ahead. His comments underscore the significant hurdles Germany’s next government will have to address. On Sunday, voters granted Friedrich Merz, leader of the conservative Christian Democrats, a mandate to form a new coalition government with the center-left Social Democrats.
The incoming administration will inherit a 2025 budget with a 13-billion-euro ($13.6 billion) shortfall, while grappling with long-standing structural issues, including high energy costs, inefficient bureaucracy, and an export sector facing intense competition from China and potential tariffs from the United States.
With tight restrictions on borrowing and no access to Bundesbank transfers, the government will have limited fiscal flexibility. The Bundesbank, which typically transfers profits to the state, has ceased doing so since 2020, as it built up reserves to counter losses caused by rising interest rates.
The central bank’s annual report revealed a €19.2 billion loss for 2024, the first deficit since 1979. Rising interest rates worldwide have led to similar losses for other central banks, as the cost of paying high interest on deposits surpasses the returns from low-yield bonds bought during past financial crises.
Sabine Mauderer, the Bundesbank’s first deputy governor, warned that losses would persist, meaning the bank would be unable to distribute any profits for the foreseeable future.
Despite the financial setbacks, the Bundesbank emphasized that it maintains a robust balance sheet, supported by €260 billion worth of gold, which has recently seen a surge in value. Nagel remained optimistic, pointing to Germany’s stable institutions, flexible companies, and highly skilled workforce as factors that would aid the country’s eventual recovery.
However, Nagel also noted the political instability of the past few years, which he described as a “lack of political reliability” that has unsettled both consumers and investors. He stressed the urgent need for a functioning government, calling for “smart economic policy” to put Germany back on the path to growth.
Related Topics:
