Europe News

Central banks are not miracle workers: Bundesbank chief

Central banks don’t have miracle medicines: Weidmann
Central banks don’t have miracle medicines: Weidmann
Profits of banks is not target for us: Weidmann
Profits of banks is not target for us: Weidmann
Global gradual recovery is on track: Bundesbank
Global gradual recovery is on track: Bundesbank

The president of Germany's Bundesbank gave a resolutely positive outlook for the global economy on Wednesday but cautioned that central banks shouldn't be overburdened with creating economic growth.

"We shouldn't paint the global economy in too gloomy colors," President Jens Weidmann told CNBC.

"The global recovery is on track," he added, although he cautioned that the "baseline" is surrounded by "more risks than previously."

Weidmann's comments come amid tumbling stock markets and increased fears of a recession. He noted that recent volatility could be traced back to a number of factors but agreed that low or negative interest rates – by central banks including the European Central Bank (ECB) – would have contributed.

He added that the recent fall in the price of oil would have a short-term impact on inflation rates and said central bankers in Europe would need to keep a watchful eye on the price for any "second-round effects."

Weidmann, who is also a governing council member of the ECB, is known for his opposition to extending the bank's massive bond-buying program. He believes that the wider investment community shouldn't rely too much on central banks.

"You shouldn't over-burden central banks. They don't have the miracles, medicine at their disposal," he said.

"We can in a sense influence prices, we can influence economic activity in the short-term but we cannot create growth. And my feeling is that time and again, central banks are at the spot and at the core of the hopes of many and I think we have to see their limited role and also their limited capacity to influence variables of interest to the broader public."

Germany in good shape

German Bundesbank President Jens Weidmann.
Ints Kalnins | Reuters

Earlier on Wednesday and commenting in the Bundesbank's annual financial report, in which the bank posted a profit of 3.2 billion euros ($3.5 billion), Weidmann said Germany's economy remains in good shape, despite signs that manufacturing, growth and business morale were on the wane.

"While wage growth was marked, inflation remained subdued; this led to a distinct rise in real disposable income," he continued. It was not surprising, the report noted, that private consumption was the main engine driving the economy last year.

"This year, too, will probably see brisk domestic demand fueling economic activity, which looks set to remain on a clear upward trajectory in 2016 despite the slight upturn in risk," the Bundesbank chief stated.

Despite Weidmann's optimism, the German economy is being closely watched at the moment for signs of a further slowdown. A decline in exports, growth and manufacturing are dogging the country which, worrying for the rest of the euro zone, is seen as the economic powerhouse of the region.

Weak German data

An apprentice in the profession welder is working in a training center in Siegburg, Germany.
'Wake-up call' as German business sentiment falls

Jitters are evident in the business community. On Tuesday, data from the Ifo Institute showed that German business sentiment fell further in February to 105.7 from 107.3 in January. In manufacturing the business climate index fell sharply with manufacturers' business expectations marking their largest downswing since November 2008.

Despite the risks, Weidmann said that the wider economic outlook in the euro zone was "likewise looking rosier."

"The euro area's gradual economic recovery is likely to continue in the rest of this year and in 2017," he noted.

However, turning his attention to the ongoing speculation that the ECB might further ease its already highly accommodative monetary policy in response to the very subdued price pressures, Weidmann warned that this could entail longer-term risks and side-effects "that it would be dangerous to simply ignore."

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