One of the leaders of Germany’s central bank issued a terrifying economic warning to Angela Merkel and the EU this morning. Speaking with CNBC, Bundesbank Member of the Executive Board Joachim Wuermeling warned that a “biggest shock is still to come”. He made the warning following optimistic claims that the eurozone, led by Germany’s manufacturing sector, were already on their way to a swift economic recovery.
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Mr Wuermeling told CNBC: “The effects of lockdown are not visible yet. It may have a delayed impact on banks. But this hit will come.”
He said that it was “very difficult to forecast” the economic shock, with economies under pressure to “get off the lifeline of the extraordinary stimulus”.
The top German banker added: “We see the economy as a whole is on a swift recovery but the biggest shock, the worst for the banks, is still to come.
“It’s very difficult to forecast because the shock is so asymmetric.”
He continued: “No-one knows when companies will get into big difficulties, when they won’t be able to pay back their loans.
“We expect the biggest waves in autumn and the beginning of next year, but it could also be extended into the whole of next year.”
This comes after a new economic survey suggested that the eurozone manufacturing recovery gathered pace last month, largely driven by strength in Germany.
The update claimed that Germany’s factories saw a surge in demand after some coronavirus restrictions were relaxed.
The German government recently expanded its package of economic support measures, including extending its furlough scheme by a year.
Last month, Jens Weidmann, president of the Bundesbank, warned that the EU economy risked becoming overly reliant on the massive fiscal and monetary support provided since the coronavirus pandemic struck.
He criticised the EU’s plan to issue €750bn of new debt for its new recovery fund and called for the huge financial aid to be scaled back soon.
Mr Weidman said that the huge stimulus risked creating “a kind of debt illusion” because the money would not be included in national debt figures.
He said: “It is important that all measures, including additional ones, are clearly limited in time.
“The state acted quickly and comprehensively in the corona crisis. Finding the exit from crisis mode will be just as important.”
The European Commission said in its summer economic forecast, released in July, that the EU economy was expected to contract by 8.7 percent in 2020 as a result of the coronavirus pandemic, plunging the bloc into “a deep recession”.