By Maria Martinez
BERLIN (Reuters) -The German Council of Economic Experts on Wednesday cut its forecast for Europe’s largest economy in 2026 and predicted only modest growth this year, despite Chancellor Friedrich Merz’s pledge to revive the economy.
The economists cut their forecast for 2026 to 0.9% from 1.0% in their May report, arguing that a spending boost rolled out by Merz’s government will only have a small impact on growth.
“In light of current challenges, Germany must develop new perspectives for growth and security policy,” said the council’s chair, Monika Schnitzer, in Berlin. “The opportunities arising from the special fund for infrastructure and climate neutrality must not be squandered.”
After winning the election in February, Merz has given Germany more financial firepower through taboo-busting fiscal reforms, including a 500 billion euro ($583 billion) fund for investment in infrastructure. But some of the funding is being used to prop up day-to-day spending rather than growth-boosting infrastructure, drawing criticism.
“The impact would be significantly greater if the funds were used entirely for additional spending and for investment,” Schnitzer said, noting that only a third of the 0.9% growth forecast for next year will be thanks to the special fund, while another third comes from calendar effects.
According to the report, only 98 billion euros from the special pot can be classified as additional investment by 2030, when the fund was earmarked with this as a condition.
ONLY MODEST GROWTH EXPECTED IN 2025
For 2025, the experts did raise their growth forecast slightly from 0.0% to 0.2%, but stressed that even after two years of recession, the German economy is still stagnating this year, due to lacklustre private investment and weak exports.
With economic growth stagnating, surveys show Merz is one of the least popular chancellors in memory, with ratings of 25%, far behind those of his two predecessors at the same point.
“The tentative recovery that seemed to be emerging in manufacturing in the summer of 2025 has fizzled out,” Schnitzer said.
The economists criticised some government expenditures such as a pension supplement that credits parents – primarily mothers – for time spent raising children, the reduced VAT rate in the hospitality sector and the reintroduction of diesel fuel subsidies for agriculture and forestry, for not being “future-oriented” investments.
($1 = 0.8575 euros)
(Reporting by Maria Martinez and Reinhard Becker; editing by Matthias Williams and Hugh Lawson)
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