Nagel: German economy faces structural growth challenges
Bundesbank President Joachim Nagel outlined the significant structural challenges facing the German economy. Speaking at the 79th Monetary Workshop, he highlighted issues with competitiveness, demographic change, and declining potential growth.
Germany's sputtering growth engine
Bundesbank President Joachim Nagel noted that German economic growth has been weak for several years, with its 'growth engine sputtering' since the late 2010s.
A significant factor is the loss of competitiveness in international markets, reflected in declining export market shares.
Bundesbank estimates attribute three-quarters of this decline to decreased competitiveness, with products becoming relatively more expensive or underperforming.
German enterprises also specialize in products with weak global demand, such as the automotive industry.
Exports to China, in particular, fell by one-fifth between 2021 and 2025, with motor vehicle exports halving.
This subdued export performance is a symptom of deeper issues, as Germany's potential growth has sharply declined since the early 2020s, anticipated to be only around 0.4 percent annually in the coming years.
Reinvigorating growth factors
Nagel outlined three critical factors for strengthening potential growth: labor input, capital input, and total factor productivity.
Germany's working-age population likely peaked in 2025, driven by demographic change, including the lowest post-war birth rate.
This aging society has contracted the labor force potential, a trend expected to continue despite contributions from immigration and higher labor force participation.
To counter this, Germany must increase labor supply by enabling part-time employees to work more, improving childcare, streamlining skilled immigration processes, and linking the retirement age to life expectancy.
These steps are crucial to reduce labor shortages and bolster potential growth.
Bureaucracy's heavy toll
Germany's capital stock is eroding, with declining investment attributed significantly to excessive bureaucracy, costing the economy an estimated €150 billion annually.
This regulatory burden also stifles total factor productivity, which has seen exceptionally weak growth, particularly due to underinvestment in the high-tech sector.
Without bold action to cut red tape and foster high-tech innovation, Germany risks long-term stagnation despite its current strengths.