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GERMANY: Nagel Sees 1.5pp Negative Growth Impact for Germany In Tariff Scenario

GERMANY
BundesbankCentral Bank NewsEM BulletFixed Income BulletsEmerging Market NewsCEEMEAEurozoneGermanyBulletMarketsEuropean Central BankForeign Exchange Bullets

ECB's Nagel expects the German economy to "suffer considerably" from the implementation of US tariffs per US President Trump's election campaign (tariffs on imports from China at 60 percent, while products from Germany and other countries would face 10 percent), according to his speech today in Frankfurt.

  • Nagel cites a Bundesbank scenario analysis, concluding a negative impact on GDP of a cumulative 1.5pp by 2027.
  • Models are more inconclusive on inflation though, with Nagel noting one only sees slight effects while another one points towards clear upwards pressure.
  • We'd note that actual tariff proposals by the US administration have so far come short of the election campaign plans.
  • More broadly, the uncertainty posed by tariff risks has been a common theme in commentary from other ECB officials:
    • Bank of Italy Governor Panetta over the weekend: "The tariffs could produce upward pressures linked to a depreciation of the euro against the US dollar and to possible retaliatory measures from the EU [...] However, these effects could be offset by a slowdown in the global economy and by China diverting its tariffed goods to European markets'”. The net impact of US tariffs would be limited or even 'slightly negative'.
    • ECB President Lagarde on Feb 10: "Greater friction in global trade would make the euro area inflation outlook more uncertain".
    • ECB Chief Econ Lane on Feb 5: "Risks to economic growth remain tilted to the downside. In addition to trade policy uncertainty, lower confidence could prevent consumption and investment from recovering as fast as expected".
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ECB's Nagel expects the German economy to "suffer considerably" from the implementation of US tariffs per US President Trump's election campaign (tariffs on imports from China at 60 percent, while products from Germany and other countries would face 10 percent), according to his speech today in Frankfurt.

  • Nagel cites a Bundesbank scenario analysis, concluding a negative impact on GDP of a cumulative 1.5pp by 2027.
  • Models are more inconclusive on inflation though, with Nagel noting one only sees slight effects while another one points towards clear upwards pressure.
  • We'd note that actual tariff proposals by the US administration have so far come short of the election campaign plans.
  • More broadly, the uncertainty posed by tariff risks has been a common theme in commentary from other ECB officials:
    • Bank of Italy Governor Panetta over the weekend: "The tariffs could produce upward pressures linked to a depreciation of the euro against the US dollar and to possible retaliatory measures from the EU [...] However, these effects could be offset by a slowdown in the global economy and by China diverting its tariffed goods to European markets'”. The net impact of US tariffs would be limited or even 'slightly negative'.
    • ECB President Lagarde on Feb 10: "Greater friction in global trade would make the euro area inflation outlook more uncertain".
    • ECB Chief Econ Lane on Feb 5: "Risks to economic growth remain tilted to the downside. In addition to trade policy uncertainty, lower confidence could prevent consumption and investment from recovering as fast as expected".