At Extreme Investor Network, we understand the importance of staying informed about global economic trends and fiscal policies. Today, we want to focus on Germany and its fiscal space to tackle structural challenges.
Germany has maintained a comfortable fiscal space, solidified by its safe-haven status and favorable funding conditions. The gradual reduction in the general government debt ratio to below the 60% Maastricht threshold by 2028 is a positive sign, as highlighted in Figure 2. Annual deficits are expected to average around 1.1% until 2028.
Looking ahead, Germany faces challenges such as an aging population and the need to balance the energy transition while sustaining international competitiveness. Increased investment spending is crucial to boost economic growth potential and address long-term demographic and environmental issues.
Failure to address these structural challenges could result in stagnating productivity, hindering both near-term and potential economic growth. Germany’s productivity levels remain only slightly above 2008 levels, impacting not only its own growth but also that of other EU countries. Germany is a key export destination for several EU member states, including Czechia, Austria, and Poland.
The low level of public net investment continues to be a concern for Germany and the EU as a whole. Constitutional reform may be necessary to resolve this issue, especially following the Constitutional Court ruling in November 2023, which limited emergency borrowing spread over multiple years.
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Our team of experts, including Julian Zimmermann, Associate Director in Sovereign and Public Sector ratings at Scope Ratings GmbH, as well as Eiko Sievert, Senior Director and Primary Sovereign Analyst for Germany at Scope, and Elena Klare, Associate Analyst at Scope, have contributed to this insightful article. Trust Extreme Investor Network for all your stock market and trading news and analysis.