Germany’s fiscal expansion marks a turning point for economic growth: QNB

Doha, Qatar: Qatar National Bank (QNB) said that Germany s macroeconomic outlook is improving, supported by fiscal expansion, an emerging recovery in...

Doha, Qatar: Qatar National Bank (QNB) said that Germany's macroeconomic outlook is improving, supported by fiscal expansion, an emerging recovery in manufacturing and more accommodative monetary conditions. While structural obstacles remain, the policy shift should mark the beginning of a better growth trajectory.

In its weekly economic commentary, QNB added that the policy shift could mark a turning point for the German economy and has already led to an improvement in growth expectations and investor sentiment. For decades, Germany stood as Europe's economic growth engine, as well as a pillar of financial stability.

However, over the last decade, structural headwinds began to materialise that found its origin two decades ago through strategic decisions by the government. The impact and challenges today include negative demographic trends, excessive regulatory and tax burdens, energy supply bottlenecks, and the insufficient adaptation of leading sectors to a rapidly changing global landscape. As a result, Germany's economy has underperformed, with real GDP remaining almost unchanged in the last 6 years. This compares poorly with the 14.9% expansion for the US, or even the 6.8% growth for the rest of the Euro area during the same six-year period.

The administration led by Chancellor Friedrich Merz could mark a turning point in economic policy and performance. For decades, Germany had prioritized fiscal discipline and debt sustainability. In contrast, the new government has advanced a massive multi-year fiscal expansion programme that could reach EUR 1 trillion, including infrastructure and defence.

After a contraction of the German economy by 0.5% in 2024, and a marginal growth of 0.2% in 2025, the survey points to improving trends, with growth rates of 1% and 1.5%, respectively, for 2026 and 2027.