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GERMAN SPENDING SPLURGE MOVING FURTHER AWAY

Germany's economy-transforming fiscal splurge is now looking further away than initially expected Goldman Sachs said in a note late Thursday.

The effect of a massive ramp up in spending on defence and infrastructure is still going to be dramatic, Goldman estimate it will add 0.2 percentage points to GDP in 2025, 0.6 percentage points in 2026, and 0.7 in 2027, but they warn that recent developments suggest it could be implemented more slowly.

Firstly, Germany plans to get its 2025 budget passed through parliament only by the end of September, increasing "the risk that spending from the infrastructure fund and tax cuts are delayed until 2026," say Goldman.

They also point to German cabinet ministers suggesting the government will likely target defence spending of 3.5% of GDP in the early 2030s, 2-3 years later than Goldman assume, and a potential conflict with the European fiscal rules which could slow the increase in infrastructure spending.

As to its effect, "In a slow implementation scenario, the fiscal impulse declines by 0.15pp, 0.25pp and 0.2pp in 2025, 2026 and 2027," though they say that even if this happens a large fiscal boost is likely in 2026 and 2027.

(Alun John)

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