Germany's Fiscal Policy and Economic Outlook

This technical report outlines Germany's proposed fiscal policy changes aimed at increasing defense and infrastructure spending. The Union and SPD have suggested exempting defense spending exceeding 1% of GDP from the debt brake, allowing for increased borrowing to finance defense expenditures. Additionally, a special infrastructure fund of EUR500 billion over ten years is proposed, which is expected to stimulate economic growth. The report discusses the potential impact of these measures on Germany's GDP, forecasting increases of 0.5% in 2025, 2.1% in 2026, and 2.4% in 2027, depending on the speed of implementation. It also highlights the risks associated with higher inflation and increased deficits, projecting a debt-to-GDP ratio of 68% by 2027. The report emphasizes the need for structural reforms in various sectors to ensure sustainable growth amidst geopolitical challenges and economic uncertainties.