Citi analysts say Germany's economy is on course for stronger-than-expected growth in 2026, with early signs that higher government spending is starting to reach parts of the economy. Defense and consumption spending are moving fastest, while infrastructure investment still lags.
Germany's economy looks set for stronger-than-expected growth in 2026, and Citi analysts say the country's fiscal package is starting to reach parts of the economy, even as some sectors lag. The boost shows up most clearly in defense and government consumption, while infrastructure investment is taking longer to filter through.
Defense and consumption lead the transmission
Defense spending from the core federal budget ran 27% higher in the twelve months through August compared with the preceding twelve months. Issuance from Germany's special fund for defense and investment reached €36.5 billion between January and August, equal to 62% of the amount planned for 2026.
Issuance does not automatically translate into spending, however, and the transmission has moved faster for consumption-related measures. The €6 billion allocated to hospital transformation costs this year is one example, with much of that money effectively transferred to another fund.
Infrastructure investment still lags
Many investment projects remain at an early stage. Therefore, finance ministry monitoring indicators show delays across numerous projects, which suggests a larger economic impact from the investment program may take several more quarters to appear.
Manufacturing orders offer the clearest sign that fiscal support is filtering through the economy. Orders began strengthening about a year ago, following passage of the 2025 budget in September, though the pickup cannot be attributed entirely to government spending: orders for durable consumer goods, including information technology, communications equipment and other electronics, have also risen among domestic and foreign buyers.
Domestic bulk orders for weapons and ammunition carry a clearer government procurement link, and Germany's domestic manufacturing order backlog has risen sharply since the 2025 budget was approved. Civil engineering orders excluding roads have risen 9.3% on a three-month-on-three-month basis, but Citi notes the series is volatile and does not yet provide firm evidence of accelerating infrastructure investment.
An uneven picture for the eurozone's largest economy
The current data point to uneven fiscal policy transmission, with defense procurement and consumption moving faster than large infrastructure projects. Their effects, Citi says, could become more visible in coming quarters.
Source: Investing.com
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