Although the German economy is still characterised by a weak recovery, sluggish productivity and persistent supply constraints, the combination of an extensive infrastructure and defence spending programme and a package of 34 structural reforms is improving the medium-term outlook. While the direct impact on growth in 2027 is likely to be limited, more significant gains are expected over time, provided the reforms are implemented effectively.
KEY TAKEAWAYS
- On 2 July, the coalition (CDU/CSU + SPD) reached a comprehensive agreement on 34 structural reforms designed to revive the economy, to boost competitiveness, safeguard the welfare state and combat the growing influence of the AfD.
- In the short term, these reforms will have a limited direct impact on GDP, in line with the J-shaped profile often observed for supply-side reforms and Germany’s past experience. However, this time they are accompanied by a major fiscal stimulus for infrastructure and defence, which makes a slight boost to growth through increased confidence plausible (in the region of 0.2 pp in 2027) as well as earlier sectoral effects in certain industries.
- If the coalition translates its political agreement into effective implementation, Germany can hope to remove several long-standing constraints (labour, bureaucracy, investment, public administration, innovation) and return to a more favourable trajectory than that observed since the early 2020s.
- The same is true in Europe. If policymakers can translate all ongoing projects into effective implementation, the continent will find it easier to finance investment projects and establish a new growth regime.
You can now read the full whitepaper at the link below
