Nagel: German economy needs investment, unified capital market

Bundesbank President Joachim Nagel highlighted a deteriorating inflation outlook, with the Eurosystem's June projection expecting 3.0 percent inflation this year and the 2 percent target not until 2028.

This follows a rise in euro area HICP inflation to a provisional 3.2 percent in May, largely driven by energy costs.

Nagel noted that while high wage demands pose a low risk, rising inflation expectations, influenced by the strong inflation of 2022-2023 and the ECB's Consumer Expectations Survey, are a concern.

Against this backdrop, the ECB Governing Council raised key interest rates by 0.25 percentage point last Thursday.

Nagel stated that the rate hike was expected and the current interest rate level is "broadly neutral," neither weighing on economic activity nor hindering structural growth measures.

The Governing Council will hold its next monetary policy meeting in July, keeping all options open.

Nagel presented the Bundesbank's latest forecast, projecting real, calendar-adjusted growth for the German economy at 0.5 percent in 2026, accelerating to 0.8 percent in 2027 and 1.4 percent in 2028.

This recovery is supported by falling energy prices, a strengthening global economy, and significant fiscal stimulus, particularly from increasing defense expenditure and infrastructure investment, contributing a cumulative 1.3 percentage point to GDP.

To sustain and accelerate this momentum, Nagel emphasized that investment must have "right of way.

" He called for changing "traffic rules" in favor of investment at three junctions, including resolving public infrastructure investment bottlenecks and streamlining planning and approval procedures for both public and private projects.