Germany's Council of Economic Experts has significantly upgraded its growth forecast for Europe's largest economy, citing a quicker-than-expected recovery from the energy shocks triggered by the Iran war. The council's chair, Monika Schnitzer, made the announcement on Wednesday while presenting the council's annual report to Chancellor Friedrich Merz.
Speaking at the handover, Schnitzer said the economy is experiencing a clear upturn, propelled by surprisingly strong exports and elevated levels of government spending. She did not disclose the precise figures during her remarks.
Merz subsequently indicated that the council had revised its growth projection to around 1%. He described the upgrade as an encouraging signal for households and businesses, adding that the upswing is expected to continue into the coming year.
Reflecting on the challenges Germany has faced, Merz said that given the many crises in the country, the government did not necessarily expect to achieve such an outcome.
The improved outlook comes alongside record spending on infrastructure and defence. Merz has also pledged structural reforms aimed at safeguarding public finances, including an overhaul of the pension system.
Despite the more optimistic growth picture, Schnitzer warned that the council's analysis found the federal government's projected revenue would be insufficient to cover its planned expenditure over the long term. She noted that reversing the government's reliance on debt financing would require difficult decisions, and she added that the economy's relatively robust state does little to alter that situation.
Merz responded by saying his government is fully aware of the funding challenges facing the country and would do everything in its power to maintain Germany's top AAA credit rating.
The council's revised forecast, while lacking specific numerical detail beyond the approximate 1% figure mentioned by Merz, points to a modest acceleration in Europe's largest economy. The emphasis on exports and government spending as primary drivers underscores the role of external demand and fiscal policy in the current recovery, while the warnings about long-term fiscal sustainability highlight the balancing act facing policymakers.