Germany’s deficit to reach post-reunification high by 2028

Investing.com -- Germany is on track to record its largest deficit since reunification, according to the Bundesbank, which warned on Friday that urgent action is needed to maintain fiscal discipline.

The German central bank projects the government’s deficit will reach 4.8% of economic output by 2028, marking the highest level since 1995 following East and West Germany’s reunification.

This significant fiscal expansion stems from Berlin’s plans to invest hundreds of billions of euros in infrastructure and defense over the coming years, representing a departure from Germany’s traditional emphasis on budgetary restraint.

The Bundesbank, which serves as an economic policy advisor to the government, cautioned that the projected deficit would violate constitutional fiscal rules.

"It is currently unclear how central government intends to deal with the urgent need for action to ensure compliance with national fiscal rules by 2028," the Bundesbank stated in its monthly report.

According to the central bank, the deficit will largely result from increased social spending, various tax cuts, and additional transfer payments.

Despite these concerns, the Bundesbank noted some positive economic impacts from the planned expenditures. Infrastructure and defense investments are expected to contribute approximately 1.3 percentage points to GDP between 2025 and 2028, with each euro invested generating about 70 cents in economic output.

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