Germany’s Economic Revival: Experts Remain Skeptical Amid Sluggish Growth and Spending Delays
Germany’s Role as Europe’s Growth Driver Under Scrutiny by Economists
Germany sits as one of Europe’s main economic powers. Economists now question its ability to spark growth for the entire continent. Earlier this year, experts focused on Germany with hope tied to a strong economic bounce. This rebound was expected to lift the euro zone and Germany alike. New data and expert views now show that these hopes might come too soon.
High Hopes Amidst Policy Shifts
The surge of hope came with major policy moves. The German government changed its debt brake rule. This rule once kept the federal debt in strict limits. New rules let some defense and security spending go over the limit. Germany also started a €500 billion ($592 billion) fund for roads, energy systems, and climate plans. These steps aimed to push up the slow economic pace.
These moves were seen as a chance to turn around weak growth. After years of annual declines in 2023 and 2024, growth was expected to pick up in 2025. The latest data shows that Germany’s GDP barely rose by 0.3% in the first quarter of 2025 before it dropped by 0.3% in the second quarter.
Euro Zone Growth Remains Tepid
The rest of the euro zone seems to share Germany’s struggles. The region’s GDP grew by 0.6% in the first quarter of 2025, then slowed to 0.1% later. Martins Kazaks from the European Central Bank said this month that Germany plays a key role in the euro zone. Still, many experts now doubt the speed and size of its impact.
Spending Delays and Economic Impact
Holger Schmieding at Berenberg noted a rise in defense orders and new road and energy works. Yet, these sums have not come through in the nation’s output data. He said, “The actual spending moves slower than many of the more upbeat voices had thought. In Germany, it takes time to spend money.”
Franziska Palmas at Capital Economics saw more challenges below the surface of the new spending plan. She noted that, aside from more money on defense and roads, the government also uses extra funds for:
• Cuts in electricity tax for businesses
• Higher spending in pensions, healthcare, and social care driven by the aging population
Palmas made clear that while lowering taxes may spur some economic action, more spending on healthcare and pensions will mainly cover rising costs, not boost economic growth.
Modest Growth Expectations for 2026
Big German economic groups now predict a growth just above 1% for Germany in 2026. The European Central Bank sees the euro zone growing around 1% too. Schmieding of Berenberg thinks that Germany’s new spending will add about 0.3 percentage points to its growth. This should raise the euro zone figures by about 0.1 percentage point. Palmas expects a similar effect where Germany might lift euro zone growth by about 0.2 percentage points.
Other factors shape the euro zone’s growth. Recent cuts in interest rates by the ECB and strong performance in countries like Spain, which benefit from more immigration and jobs, help. Yet, factors like U.S. tariffs and tighter spending plans in France may hold back progress.
Broader Implications Beyond GDP
Even with a cautious view, many expect Germany’s slow but steady recovery to bring small gains to its neighbors. Schmieding noted, “Germany’s move from a short recession until mid-2024 to growth after late 2025 will give its neighbors a small boost. Germany remains an important trade partner.”
In summary, Germany’s bold fiscal changes have sparked hope, but the pace of spending and real growth numbers remain slow. Experts warn that 2026 may bring only a limited rise, amid a mix of spending challenges. Still, as Europe’s largest economy, Germany’s bounce-back will count for the overall health of the region.
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