The 500 billion euro infrastructure fund planned by Germany could increase the economic production of an average of over two percentage points per year in the next 10 years, the German Economic Institute said on Friday.
The probable chancellor Friedrich Merz of Germany, Friedrich Merz, said on Friday that he had obtained the crucial support of the green party to increase state loans in a massive way, opening the way for the current parliament to take the agreement next week.
Diw, one of the main German economic forecast agencies, has reduced its predictions about the largest economy in Europe this year and the next one, due to political uncertainty and global commercial tensions.
Next year, the gross domestic product (GDP) will probably grow by 1.1%below 1.2%in December, said the Institute. This prediction does not take into account the defense and infrastructure expenses.
If the increase in defense and infrastructure expenditure is included, there is a growth of 2.1% in 2026, said Diw.
The institute provides that the economy is stagnant this year, reviewing its previous expansion forecasts of 0.2%. This is due to the fact that the tax expansion would have no impact in the current year.
One of the reasons for the downward revision is private consumption, which is developing more weakly than expected, despite the increase in real wages, said Diw.
Many people in Germany are maintaining large purchases due to the global political situation and concerns for the safety of employment, he added.
In 2024, Germany became the only G7 country to record a contraction for two consecutive years.
The strengthening of public investments and the reduction of economic uncertainty should be one of the main priorities of the new German government, said the president of Diw Marcel Fratzscher on Friday during the presentation of the new forecasts.
“Although special funds are not the ideal solution, they could offer a pragmatic approach to compensate for Germany’s weaknesses and bring the economy out of the crisis,” said Fratzscher.
Source: Terra
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