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(Bloomberg) — Economy Minister Katherina Reiche said the government in Berlin expects German gross domestic product to expand by around 1% to 1.5% this year and next, underpinned by a surge in state outlays on infrastructure and defense.
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“We agree that growth this year and next will be driven almost exclusively by government spending,” Reiche said Tuesday at an energy forum in Berlin.
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Special debt-financed funds for climate, modernizing Germany’s infrastructure and strengthening the armed forces will account for the lion’s share of expansion, she said.
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Europe’s largest economy grew last year for the first time in three years, a fledgling recovery that’s expected to pick up steam but one that Chancellor Friedrich Merz still calls “unsatisfactory.”
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Reiche is due to present the government’s updated economic forecasts on Wednesday, and some of the latest predictions from other institutions offer reason for optimism.
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The Bundesbank expects the economy to pick up over the course of 2026, and the International Monetary Fund last week raised its outlook for the year to 1.1% expansion. Investors are similarly confident, with expectations at the highest level since mid-2021.
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Reiche said Germany badly needs a broader-based expansion that isn’t so dependent on debt-financed government spending.
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While public-sector investment is expected to increase by almost 8% this year, private-sector spending is only seen growing by 1.1% to 1.8%, she added, calling it “effectively flat” and saying “we cannot be satisfied with that.”
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