Germany earmarks $125 billion for 2025 to revive sluggish economy

Qatar Tribune

5 days ago

Agencies
The German government is earmarking some 110 billion euros ($125 billion) in public investments this year to revive the nation's sluggish economy, the country's new finance minister, Lars Klingbeil, said on Tuesday.
'We want there to be tangible changes for people who work hard and who rightly expect our country to function better,' said Klingbeil, who also serves as vice chancellor in Chancellor Friedrich Merz's new government.
The Finance Ministry said investments are to increase by almost 50% in 2025, compared to the previous year, the report by the Deutsche Presse-Agentur (dpa) said.
The investments are to come from Germany's core budget, as well as a 500-billion-euro package that was passed in March.
'At the same time, we will implement comprehensive structural reforms and continue to strictly consolidate the budget,' Klingbeil said in an emailed statement to Reuters.
Germany's new coalition government plans a surge in public spending targeting defense and infrastructure, hoping to close gaps in long-neglected areas of investment while hauling the economy out of a two-year downturn.
'My top priority is to put Germany on a growth path now. This is how we boost the economy and secure jobs,' said Klingbeil.The landmark 500-billion-euro package was rushed through the German parliament following February's parliamentary elections by the incoming coalition partners – Merz's Christian Democrats (CDU), the Bavaria-only Christian Social Union (CSU) and Klingbeil's center-left Social Democratic Party (SPD).
It allowed the new administration to circumvent strict rules on borrowing and deficit spending to invest in defense, infrastructure and climate protection measures.
The package required votes from the Greens, who secured a promise for 100 billion euros of the pot to be transferred to the government's Climate and Transformation Fund, dedicated to climate spending.
However, the Greens – now in the opposition – have warned that the government could use the special fund to plug budgetary holes and finance expensive giveaways promised during the election campaign.
On Tuesday, Klingbeil announced comprehensive structural reforms to cut budgetary spending. The government is currently preparing a draft of the 2025 budget, which the cabinet is due to approve on June 25.
The announcement by the finance minister comes as a new projection by the German Chamber of Commerce and Industry (DIHK) on Tuesday showed the German economy is expected to contract by 0.3% this year, shrinking for a third consecutive year.
The risk of recession persists, the DIHK said, but following a promising first quarter, its projection was more optimistic than the previously forecast 0.5% contraction published in February.
Economic growth in the first quarter was significantly stronger than expected due to export and industry frontloading ahead of U.S. tariffs.
Germany had been expected to be badly affected by tariffs due to its export-oriented economy. The U.S. was Germany's biggest trading partner in 2024, with two-way goods trade totaling 253 billion euros.
The DIHK forecasts German exports to decline by 2.5% in 2025, also contracting for a third consecutive year.
A DIHK survey, conducted among 23,000 companies from all sectors and regions, showed that 29% of them see exports falling over the next 12 months, while only 19% expect exports to rise.
The German economy continues to struggle with pessimistic business sentiment, standing at 94.9 in the latest survey. Values under 100 mean that there are more pessimists than optimists.
'Businesses are still waiting for signals of progress,' DIHK managing director Helena Melnikov said, calling for urgent political action.