German economy will recover but still needs reforms, Bundesbank's Nagel says

FRANKFURT (Reuters) - The German economy will recover as temporary headwinds such as high inflation and interest rates fade, but the country still needs major reforms ranging from immigration to childcare, Bundesbank President Joachim Nagel said on Wednesday.

Europe's largest economy is looking at a second consecutive year of economic contraction as demand for its exports sags and domestic activity is sapped by high borrowing costs.

But Nagel slammed the media for their negativity on Europe's former economic powerhouse and stuck to the Bundesbank's view that the economy will recover once some of the factors holding it back, including weak demand from other European countries, fade.

"The media seem to want to outdo each other with scary news about the German economy," he told an event hosted by the German association of family businesses.

"What is certain is that some of these factors only have a temporary effect," he added. "We therefore assume that the German economy will slowly pick up some momentum again."

Still, Nagel, who represents Germany on the European Central Bank's Governing Council, conceded that his country faced a number of structural challenges, including high fuel costs, too much red tape and a lack of skilled workers.

He called for deep reforms such as putting a price on carbon emissions, centralising the financial administration, selectively attracting workers from abroad and offering better childcare so that more women can join the labour market.

"The Federal Government is keeping an eye on the three economic policy areas I have just discussed," Nagel added, praising its Growth Initiative.

"However, much still depends on implementation. And there is still a lot to do."

(Reporting By Francesco Canepa, Editing by William Maclean)