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Skyrocketing economic troubles drive up the deficit in the 2025 budget plan.

Worsening economic forecasts, as declared by the federal government, expand the room for additional borrowing within the debt limit in the federal budget for Berlin.

Skyrocketing economic troubles drive up the deficit in the 2025 budget plan.

Germany Braces for Possible Economic Stagnation:

The German government's spring 2025 forecast suggests a dismal growth outlook of zero%, a significant drop from the earlier estimated 1.1% growth and a distressing third consecutive year of stagnation or contraction. This grim prediction is largely due to the impact of U.S. tariffs, specifically the 25% levy on car imports, resulting from Trump's trade policies, which puts Germany's export-driven automotive sector at risk.

This disheartening forecast underscores the need for additional borrowing to fund key investments in defense and infrastructure, expanding the room within the debt brake in the federal budget. With the spring projection, the government has revised its growth forecast down to zero from the previous 0.3%, resulting in a permissible credit margin of approximately 33 billion euros. This figure, around one billion euros more than initially anticipated at the beginning of the year, is made possible by the calculating the cyclical component, allowing for increased borrowing in difficult economic times, and the structurally permissible new debt of around 15 billion euros.

With structural issues such as demographic challenges and high nonwage labor costs yet to be resolved, the government's focus on crisis spending and loosening debt brake restrictions may provide a short-term solution. By creating a special infrastructure fund and exempting defense spending from debt limitations, economists predict a 0.5 percentage point GDP boost from the increased public investment. However, it remains clear that long-term growth depends on more extensive reforms that go beyond government spending.

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  1. The dismal growth outlook for Germany in spring 2025, a zero% growth rate, is likely to increase the country's debt as the government seeks additional borrowing to fund key investments in defense and infrastructure.
  2. The German government's expansion of the debt brake in the federal budget to accommodate increased borrowing is likely to amount to around 33 billion euros, according to the revised growth forecast, due to calculating the cyclical component and the structurally permissible new debt of around 15 billion euros.
  3. Busemann, an economist, predicts a 0.5 percentage point GDP boost from the increased public investment created by the government's special infrastructure fund and exemption of defense spending from debt limitations.
  4. In light of the predicted economic stagnation in Germany, Reuters suggests that long-term growth depends on more extensive reforms that go beyond government spending, addressing structural issues such as demographic challenges and high nonwage labor costs.
Strengthened financial flexibility in Germany's federal budget,due to a gloomier economic forecast by the government, could enable higher borrowing within the debt limit.

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