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Germany's fiscal shift will offset trade drag starting in 2026, IMF official says
Published by Global Banking and Finance Review
Posted on April 25, 2025
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Published by Global Banking and Finance Review
Posted on April 25, 2025
By Maria Martinez
WASHINGTON (Reuters) -Germany's fiscal expansion will boost its economy starting in 2026 after years of weak growth, offsetting the increased drag from U.S. tariffs, Oya Celasun, deputy director of the International Monetary Fund's European Department, said on Friday.
Germany's parliament approved in March plans for a massive spending surge, throwing off decades of fiscal conservatism in hopes of reviving economic growth and scaling up military spending.
The IMF, however, doesn't expect the increased spending to happen quickly.
"But as we move into 2026 and 2027, it will be a dominant factor, offsetting the expected ongoing drag from trade tensions," Celasun told a panel during the IMF and World Bank spring meetings in Washington.
She added that she expects the fiscal expansion to lift potential growth in the long term.
Germany was the only member of the Group of Seven advanced economies that failed to grow for the last two years, and the tariffs announced by U.S. President Donald Trump would deal a major blow - possibly putting it on track for a third consecutive year of recession for the first time.
The fiscal plan includes 500 billion euros ($568.10 billion) for a special fund for infrastructure and plans to largely remove defence investment from the rules that cap borrowing.
The IMF has welcomed the infrastructure package after pointing to deficient public infrastructure as a factor holding back Germany's economy.
Celasun, however, added that there are other important areas in which further efforts by the German government are needed, such as cutting regulation, becoming a leader in pushing for European integration and dealing with its changing labor force by helping more women work on a full-time basis.
($1 = 0.8801 euros)
(Reporting by Maria Martinez; Editing by Paul Simao)