(Bloomberg) --
Bundesbank President Joachim Nagel warned that Donald Trump’s threatened trade levies risk derailing the German economy.
“If the tariff plans are implemented, it could cost us 1% of economic output,” he told Die Zeit newspaper in an interview published Wednesday. “That’s very painful when you consider that our economy won’t grow at all this year and probably less than 1% next year even before a US tariff plan. If the new levies are actually imposed, we could even slip into negative territory.”
Last week’s election has cast a pall over the prospects of the euro-area economy, as the return of Trump to the White House might also see a protectionist turn from the new US president.
Ahead of the Nov. 5 vote, Trump pledged 60% tariffs on China and as much as 20% on everyone else — the biggest trade shock since the Smoot-Hawley Act that deepened the Great Depression of the 1930s.
Bank of France Governor Francois Villeroy de Galhau also reckons that Trump’s victory threatens growth, telling France Inter radio on Wednesday that “the result of the American election raises risks for the global economy.”
Their Finnish counterpart — Olli Rehn — told Bloomberg Television earlier this week that the effect of US tariffs would be in the “medium-to-long term.”
Germany’s economy is expected to see a second full year of contraction in 2024 as the export-focused country suffers from weak global demand, a manufacturing malaise and the fallout from the energy crisis triggered by the war in Ukraine.
The collapse of the German government and snap elections scheduled for Feb. 23 have created additional uncertainty.
Nagel declined to comment on Berlin politics, but said that there’s a “great need for action” and that politicians need to get going as quickly as possible.
Asked about monetary policy, Nagel rejected the notion that the European Central Bank is too slow in lowering interest rates and highlighted “still noticeable price pressures, which are mainly due to wages in the service sector.”
“This price pressure is being masked by the fall in energy prices,” he said.
Nagel has repeatedly called inflation a “greedy beast,” but acknowledged in the Zeit interview that this is now “under control again.”
“As a central banker, you never finish your job,” he said. “The trick is to ensure that the inflation rate remains at 2% in the long term.”
--With assistance from William Horobin.
(Updates with Villeroy in fifth paragraph)
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