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Investing.com - A new German fiscal spending package approved by the country’s upper house of parliament on Friday is tipped to boost growth over the next couple of years, according to analysts at Deutsche Bank (ETR:DBKGn).
In a note to clients, the analysts led by Robin Winkler said they now project that real gross domestic product in Europe’s largest economy will accelerate to 1.5% in 2026 and 2% in 2027.
"[T]he package now passed allows for a significantly larger fiscal impulse," the analysts wrote.
But they flagged that the near-term outlook for Germany’s economy is "far from rosy" due to uncertainty around the impact of potential sweeping reciprocal tariffs by U.S. President Donald Trump and subsequent risks from the levies to U.S. activity.
Despite seeing a pick-up in momentum in the second half of 2025, the analysts slashed their forecast for this year to 0.3% from 0.5%.
"[T]here remains considerable uncertainty on the magnitude and timing of the fiscal expansion to come," the analysts said.
Earlier this week, the lower house of parliament in Germany, the Bundestag, backed measures that loosened strict borrowing limits and paved the way for Chancellor-in-waiting Friedrich Merz’s plans for heavy expenditures on defense and infrastructure. The upper house, the Bundesrat, approved the spending splurge, clearing the final hurdle for a historic shift in policy that ends decades of fiscal conservatism.
Merz has argued that the changes were needed to respond to recent comments from Trump, as well as a perceived threat from Russia, that have raised doubts around longstanding U.S. military aid to Europe and sparked calls for increased national defense spending.