Germany\u2019s fiscal policy is boosting the economy<\/p>\n
Policy steps taken last year set up the more expansionary government spending that is expected to help the economy this year. These include the amendment of the debt brake rule last March to allow for higher defense spending and infrastructure investment.<\/p>\n
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Germany\u2019s fiscal deficit is expected to widen to 3.7% this year and 3.9% in 2027, according to the report. \u201cFor Germany, these would be the highest deficits outside of a recession in decades,\u201d Garnadt writes.<\/p>\n
Concern that the government might falter in the speed or execution of its plans to boost spending has receded. Compared with the initial announcements last year, the fiscal expansion is now more focused on subsidies, social spending, and tax reductions, as opposed to public investment. Rising defense spending\u2014which Goldman Sachs Research expects to reach 3.3% of GDP by 2029\u2014should support growth throughout the period the team\u2019s outlook covers.<\/p>\n
\u201cPublic spending had already picked up over the course of 2025, and we expect it to accelerate further this year,\u201d Garnadt writes. This means fiscal policy turns expansionary after four years of fiscal drag. The outlook sees a fiscal boost of 0.5 percentage point in both 2026 and 2027.\u00a0<\/p>\n