German Omicron Gloom Confronts New Bundesbank Chief Nagel

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Joachim Nagel could have wished for a less gloomy start as Bundesbank chief.

The 55-year-old begins his first full week as head of Germany’s central bank on Monday with inflation near a three-decade high, industrial output unexpectedly shrinking and the government tightening restrictions on restaurants to stem surging Covid-19 cases.

Additionally, Germany will on Friday become the first Group of Seven economy to report 2021 gross domestic product data, that might point to a contraction in the final three months of the year. 

Still, analysts are expecting the economy to rebound, with the Bundesbank predicting an expansion of 4.2% in 2022.

Finance Minister Christian Lindner is also set to present figures showing new borrowing was 10 billion euros ($11.3 billion) less than budgeted last year thanks to higher tax revenue.

That’s the backdrop as Nagel takes his seat on the European Central Bank Governing Council, where he will be thrust into the debate on whether a tougher stance is needed to combat the fastest consumer-price growth since the euro was created.

The jury remains out on whether the coronavirus’s omicron variant will dull inflation by weighing on Europe’s economic recovery or fuel it by exacerbating existing supply-chain disruptions.

Germany may need to tighten restrictions before the next scheduled pandemic-policy meeting on Jan. 24, according to a health expert from the Green party, a member of the ruling coalition. Test requirements for people who haven’t yet gotten booster shoots may need to be widenened nationwide to fitness studios and other areas, Janosch Dahmen told Deutschlandfunk radio.

On Monday, the country reported 375.7 cases per 100,000 people over the past seven days, the highest level in nearly a month. Given the controversy over a general vaccine mandate, the government should move ahead with making shots compulsory for more public-sector employees such as police and teachers, Dahmen said.

Stricter Rules

Germany’s latest curbs on hospitality came with a pledge to speed up vaccinations, though Chancellor Olaf Scholz acknowledged that case numbers are expected to rise even more. For the economy, a full resumption of component deliveries to factories would go a long way toward boosting growth.

“Germany’s reliance on manufacturing became a weakness as global supply chains gummed up,” said Jamie Rush, chief European economist at Bloomberg Economics. “Once shortages ease, production will be a more reliable driver of growth, and well-hedged gas supplies appear to be sparing consumers the worst of Europe’s energy crisis.”

That prospect for improvement is one comfort for Nagel as he takes office. His tenure started on Friday with an official ceremony hosted by Germany’s president, Frank-Walter Steinmeier.

Another round of formal proceedings will follow on Tuesday, with an hour-long event to usher in his term that will also featuring his predecessor Jens Weidmann, ECB President Christine Lagarde and Lindner.

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