Saturday, 15 March 2025
The CDU/CSU and SPD have proposed a €500 billion investment package aimed at addressing Germany’s economic stagnation and deteriorating infrastructure. If implemented, the plan would increase public investment over the next decade, with a projected positive impact on economic growth starting in 2026. According to the German Institute for Economic Research (DIW Berlin), this investment could boost Germany’s economic output by about one percent in 2026 and over two percent annually from 2027 onward.
The German economy has faced years of underinvestment in public infrastructure, with the share of public investment in GDP declining significantly since the 1970s. The proposed package aims to reverse this trend by channeling funds into essential infrastructure projects such as housing, transportation, and digital modernization. The funding would come from special infrastructure funds, allowing for long-term investments without immediate budget constraints.
DIW Berlin’s economic model estimates that the full €500 billion investment would be phased in gradually, reaching its peak impact on GDP by 2030-2031. The initial investment is expected to be around €20 billion in 2026, increasing public investment’s share of GDP by 0.5 percent. Over the following years, investment levels would rise, with the highest impact projected for 2028 and 2029, after which the economic boost would taper off but remain positive.
The anticipated effects include a surge in private investment, improved efficiency in public administration, and better infrastructure to support business activity. Historical data shows that large-scale public investment programs in Germany have previously stimulated economic activity, particularly in areas such as regional development, public housing, and education. DIW Berlin’s analysis suggests that the package could generate a multiplier effect, with public investment leading to a proportional increase in private sector growth.
Concerns about inflationary pressure from such large-scale public spending have been considered. DIW Berlin’s analysis suggests that inflation could rise by an average of 0.5 percentage points per year, a moderate increase that is unlikely to disrupt overall price stability. Financial markets have reacted cautiously to the proposal, with inflation-linked government bond expectations showing only a slight increase in anticipated inflation rates.
The proposed investment package is seen as a potential turning point for the German economy, which has struggled with slow growth, declining infrastructure quality, and administrative inefficiencies. If approved, it could help break the cycle of low public investment and weak economic performance. The economic benefits of the plan are expected to outweigh the risks, providing a much-needed boost to growth while modernizing Germany’s infrastructure for the future.
Source: DW Berlin
