Bundesbank President Joachim Nagel has cautioned the European Central Bank (ECB) against rushing into further interest rate cuts, despite eurozone inflation aligning with the ECB’s 2% target. Speaking in Frankfurt, Nagel emphasized the need for a data-driven, meeting-by-meeting approach to monetary policy.
Earlier this month, the ECB trimmed its key rate to 2%, citing May’s inflation rate of 1.9%. While acknowledging that policy is no longer restrictive, Nagel stressed the importance of maintaining caution amid global uncertainties, particularly the conflict in the Middle East. He warned that prolonged instability could significantly drive up oil prices and affect both inflation and economic performance.
Nagel also addressed Germany’s economic outlook. Despite global headwinds and trade tensions with the U.S., Germany posted a better-than-expected 0.4% GDP growth in Q1. While the Bundesbank still forecasts stagnation for 2025, modest growth of 0.7% in 2026 and 1.2% in 2027 is projected.
However, he warned that true recovery depends not just on spending but also on structural reforms—improving planning efficiency, reducing bureaucracy, and incentivizing work. If implemented effectively, Germany’s planned investments in infrastructure, defense, and innovation could lay the foundation for sustained economic growth.