Bundesbank chief warns prolonged Iran war could fuel inflation, slow eurozone growth

• German central bank posts $9.96 billion loss in 2025, while value of Germany’s gold reserves surges by $144.7 billion to $457.6 billion amid sharp rise in global gold prices

ISTANBUL

Bundesbank President Joachim Nagel warned Thursday that a prolonged war in Iran could push up inflation and weigh on economic growth in the eurozone, while stressing that the European Central Bank remains ready to respond to any major changes in the inflation outlook.

Speaking while presenting the German central bank’s 2025 annual report, Nagel said the ECB Governing Council’s primary objective remains anchoring inflation at its 2% target.

He noted that achieving this goal remains the central task of monetary policy heading into 2026 and said current interest rate levels are appropriate, though policymakers stand ready to react if risks intensify.

Nagel said the ECB is in a strong position to respond should the inflation outlook change significantly.

Commenting on broader economic risks stemming from geopolitical tensions, the Bundesbank chief warned that a prolonged conflict in Iran could seriously damage the eurozone economy.

According to Nagel, a quick resolution to the conflict would likely limit inflationary effects to the short term, but a longer war could keep energy prices elevated, pushing inflation higher and weakening economic activity across the eurozone.

He added that an extended conflict centered on Iran could disrupt macroeconomic balances, although it remains too early to draw firm conclusions given the volatile situation.

Bundesbank posts loss in 2025

Nagel also said the Bundesbank recorded a loss of 8.6 billion euros ($9.96 billion) in 2025.

He attributed the loss mainly to bonds purchased under stimulus programs over the past decade to support the economy during crises.

Although the deficit narrowed compared with the previous year, Nagel said the bank is expected to remain in negative territory in 2026 as well.

Gold reserves surge in value

Meanwhile, the Bundesbank’s annual report showed that Germany’s gold reserves benefited significantly from the sharp rise in global gold prices.

Gold, which traded at around $2,600 an ounce at the start of last year in London, climbed to $4,300 by the end of 2025 and has recently approached $5,200.

As a result, the value of the Bundesbank’s gold holdings increased by about 125 billion euros ($144.7 billion) over the year to reach 395.2 billion euros ($457.6 billion).

Germany continues to hold the world’s second-largest gold reserves after the United States, with total holdings of 3,350 tons.

According to the report, about 1,710 tons are stored in Frankfurt, 1,236 tons in New York, while holdings in London declined slightly by about 1 ton to 404 tons. The total reserves fell by 1.26 tons due to gold coins being minted.

The report confirmed that the reserves stored in Frankfurt, New York and London remain in their current locations.