By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel said Friday that Germany’s economy was on a recovery path and could grow by around 1% this year, while warning that its underlying growth potential remained very weak.

Nagel, who is president of the Bundesbank, said in a speech prepared for delivery in Rostock that the German economy had performed considerably better in the first half of 2026 than had been expected only a few months earlier.

“It could well be that we will see real economic growth of around 1% on average for the year,” Nagel said.

“After three years of stagnation, that would indeed be a small exclamation mark,” he said.

Nagel said the federal government’s debt-financed fiscal package, focused on defense, infrastructure and climate protection, was supporting the recovery, while unexpectedly robust global demand was also benefiting German exports.

However, the cyclical improvement should not distract from Germany’s structural weaknesses, he said.

The Bundesbank estimated Germany’s potential growth rate at just 0.4% in 2026, compared with a rate three to four times as high a decade ago, Nagel said.

He attributed the decline to three main factors: the retirement of the baby-boom generation, weak corporate investment and very low productivity growth.

Nagel said Germany would need to increase labor supply, including by encouraging more women to work full-time, reducing incentives for older workers to retire early and allowing regulated labor-market immigration.

“Without immigration, we will not be able to maintain our prosperity,” he said.

He also called for faster and more digital public administration, less bureaucracy and easier procedures for setting up businesses, arguing that such measures would help revive investment.

Nagel said criticism that the German government was doing too little for the economy was misplaced, though some reforms could still be pursued more quickly and decisively.

Turning to pensions, Nagel backed proposals to link the statutory retirement age to life expectancy and to abolish the possibility of retiring without actuarial deductions after 45 years of contributions except in hardship cases.

“If we live longer, we must also work longer,” he said.

He warned that failure to implement the pension commission’s proposals because of opposition to changes in early-retirement rules would raise serious questions about Germany’s capacity to reform.

Nagel also expressed confidence that European Union lawmakers would approve the digital euro this year, saying it would strengthen Europe’s sovereignty in payments and reduce dependence on non-European providers.

“I am confident that Brussels will give its approval this year,” he said.

Nagel said the digital euro would complement rather than replace cash and would not be programmable or intended to monitor citizens.

“From 2029, you will have an additional option to choose from,” he said.