Frankfurt (Germany) (AFP) – Germany is using a massive fund for the wrong purposes and it risks providing just a minor boost to the struggling economy, experts warned Wednesday, as they cut their 2026 growth forecast. The influential council of economic advisers forecast GDP growth of just 0.9 percent for next year, down from a previous prediction of one percent, and below a government estimate of 1.3 percent.
Chancellor Friedrich Merz’s coalition has established the 500-billion-euro ($580-billion) fund as part of its efforts to reboot Europe’s biggest economy after two years of recession. The money is intended to be spent over 12 years to overhaul the country’s creaking infrastructure, from crumbling bridges to ageing trains, and for projects to slash greenhouse gas emissions. There had been hopes the extra spending could provide a big boost to the economy, but the economic advisers warned this was unlikely in view of current plans.
The fund had so far been largely used for budget “reallocations” — to cover existing spending — and to finance day-to-day outlays, they said in their annual economic assessment. As such the bump to GDP is likely to be minor, said the group, which is independent but advises the government. “The effect would be significantly greater if the funds were used entirely for additional expenditure and investment,” they added.
If the fund was used in a more “targeted manner,” it could increase GDP growth by up to five percent by 2030, council member Martin Werding told a press conference — but under current plans, the boost is likely to be less than two percent. “Adjustments need to be made,” he said. “There is a need for greater transparency and more effective monitoring of how the funds are spent.”
The experts predicted 0.2 GDP growth for 2025, in line with the government’s forecast. While the figure is meagre, it will mean the economy has dodged a third straight year of contraction. Berlin is also planning huge extra outlays to overhaul the long-underfunded armed forces, although this is being done by exempting defence spending from the country’s debt rules.
Europe’s traditional powerhouse has been hammered by an industrial slump and weak demand for its exports, with US tariffs adding to its problems.
© 2024 AFP
