Nagel: German economy needs reforms

“We are seeing encouraging signs of recovery in the latest economic data and forecasts,” Nagel said at a conference in Riga. Nagel pointed out that there will be an upward revision in the central bank's forecast for next month, and noted that these trends are "encouraging" but warned of "complacency".

The German official stated that increasing public expenditures in the fields of defense and infrastructure and the cyclical recovery "will not solve Germany's structural problems."

Europe's largest economy is having a surprisingly strong year, despite the negativities caused by the Iran war and inflation triggered by US tariffs. Large-scale public spending underlies growth. The government recently increased its growth forecast for 2026 to 1.3 percent.

Nagel noted that Germany has gained some "cyclical momentum" and that is good news.

Drawing attention to the Bundesbank's comprehensive outlook report to be published in December, Nagel stated that the interim evaluations point to "a stronger recovery than we expected in the summer months." In June, the Bundesbank announced its 2026 growth forecast as only 0.5 percent. Nagel said last month that this rate could reach 1 percent.

However, cautioning that the country's potential growth rate of around 0.3-0.4 percent is certainly too weak, Nagel emphasized three main areas of structural reform: Labor supply, energy transition and business environment.