IfW Kiel ties German growth forecast for 2026 to defence spending
Germany's Kiel Institute for the World Economy (IfW Kiel) expects the German economy to grow more strongly in 2026 than initially forecast.
In the institute's spring forecast published on Thursday, it reported that researchers expect gross domestic product (GDP) to increase by 1.5% in 2026 up from 0.9% in its winter forecast.
"The planned defence spending can give Germany a structural boost if it is spent correctly," said IfW Kiel President Moritz Schularick. The money would have to benefit German and European companies, he said.
Schularick was referring to a plan by the parties hoping to form the next German government to enable a substantial deficit leeway through a special fund and credit-financed defence spending.
On Thursday, lawmakers are meeting in Berlin to discuss an amendment to the Basic Law, Germany's de facto constitution, to allow Germany's strict debt rules to be relaxed.
The proposal is for the creation of a special €500 billion ($545 billion) infrastructure fund, as well as the loosening of Germany's strict debt rules, enshrined in the constitution, to allow for increased military spending.
IfW Kiel expects inflation to reach 2% next year, the unemployment rate to fall to 5.9%, revised down from 6.2% - and public debt to rise to 65.4% of GDP from the previous forecast of 63.3%.
The growth projections hinge on lawmakers approving both the special fund and the fiscal reforms. For 2024, however, IfW Kiel still anticipates economic stagnation, in line with its earlier winter forecast from December.
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