LIVE MARKETS-Germany's big budget plan poses big questions

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GERMANY'S BIG BUDGET PLAN POSES BIG QUESTIONS

Germany announced a sweeping budget plan on Tuesday that aims to nearly double military spending and launch a 500 billion euro infrastructure drive, in what Finance Minister Lars Klingbeil called a "paradigm shift" in the country's investment policy.

The draft budget seeks to raise defence outlays to 3.5% of gross domestic product (GDP) by 2026, with an eye on reaching NATO's proposed 5% target pushed by President Trump.
The plan includes nearly 847 billion euros in borrowing over five years, with 500 billion euros earmarked for infrastructure and 100 billion euros for defense via special funds. Defense spending alone is set to rise from 95 billion euros in 2025 to 162 billion euros by 2029, reaching 3.5% of GDP.

Investment bank analysts and strategists are cautiously optimistic.

J.P. Morgan sees the fiscal shift as a counterweight to global trade headwinds, though it questions whether planned investments can be fully executed.
Deutsche Bank calls the move "whatever-it-takes" fiscal policy, noting that the front-loaded stimulus could lift growth to 0.5% in 2025, but warns of overheating risks without structural reforms.
Goldman Sachs highlights a surge in current spending which could boost near-term growth while flagging concerns about the lower multiplier effect of non-investment outlays. It sees a growth rate of 0.4% in 2025 and 1.4% in 2026.

Despite the bold numbers, the banks say that execution risks remain. The budget still awaits parliamentary approval in September, and Germany has been operating under a provisional budget since early 2025 due to political delays.

As Europe's largest economy pivots from frugality to fiscal firepower, the coming years will test whether this stimulus can deliver lasting growth, or simply buy time.

(Joel Jose)

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