There is considerable uncertainty among economists when estimating the economic effects of the German government's new financial packages.

Much depends on how the new coalition government addresses structural challenges, Eiko Sievert, Germany analyst at the rating agency Scope, told Börsen-Zeitung. A total of 25 economists were asked to provide their assessments of the growth and inflationary impacts of the 500 billion euros special fund for investments, as well as the increased defence spending exempt from the debt brake.

A key factor is how successfully bureaucracy is reduced and planning processes are simplified to ensure that investments can be implemented quickly and efficiently. Additionally, according to the general consensus among economists, labour market reforms and increased immigration are needed to support additional production. Both are necessary to prevent the funds from fuelling higher inflation.

Potential growth plays a central role in this context. It is currently estimated to be between 0.3% and 0.7%, whereas it was significantly higher in previous years. Long-standing stagnation, deteriorating business conditions leading to production losses and relocations, the decline in competitiveness and technological leadership of German industry, and the limited labor supply have gradually reduced the potential. To increase it again and handle the expected surge in demand, the structural reforms mentioned earlier and, above all, long-term investment security are required. Policymakers must ensure this through well-communicated planning.

Furthermore, financial markets’ reaction to Germany’s political and fiscal shift will be largely determined by political and economic prospects. The markets are essential for financing the country’s economic transformation, but require reliable assessments of the expected economic effects: How much will the German economy grow with these financial packages? How will production potential change? What will be the impact on prices? Could the trillion-euro package jeopardise debt sustainability? What does this mean for Germany’s credit rating?

The survey results indicate a noticeable growth boost, raising the annual growth rate by 0.5 to 1.5 percentage points. Additionally, production potential could gradually expand by 0.4 to 1.5 percentage points. At the same time, inflationary effects appear manageable. With an inflation increase of 0.1 to 0.4 percentage points, the ECB may not necessarily have to resort to sharp interest rate hikes.

As for the debt ratio, which played a major role in the fiscal debate following the federal election, estimates vary widely. Economists have now factored in the growth effects, and none expect Germany to exceed a debt ratio of 100% of GDP. Projections for 2029 range between 66% and 90% – which is still below the levels of many other countries.