Germany Grows, but Only Because the Government Is Paying
Germany's economy will grow only modestly this year, driven primarily by government spending rather than private sector activity, according to a new forecast presented by the Minister for Economic Affairs Katherina Reiche and the ministry's chief economist Benjamin Weigert.
Weigert warned that without higher public spending and a favorable calendar effect, the economy would be virtually stagnant. Consumption and investment are growing only marginally, while foreign trade is exerting a negative drag. The government's projected growth of 0.5% is thus largely the product of fiscal stimulus.
The government has also revised its forecasts downward. In January it expected growth of 1% for this year and 1.3% for 2027; it now projects only 0.5% and 0.9% respectively, citing the economic consequences of the conflict in the Middle East.
Germany's central bank, the Deutsche Bundesbank, is forecasting moderate growth in the early part of the year but expects the negative effects of the conflict to be felt in the coming months. It has also flagged persistent inflation, the trajectory of which will depend on further developments in the Middle East.