Germany: February MoF Report Signals Positive Fiscal Impulse in Q1

The February federal government monthly report confirms January’s figures . Over the period January to February, e xpenditure rose sharply, by 9.6 % Y/Y, while revenues fell by 6.5 %. As a result, the fiscal deficit already stands at € 34 bn ( Chart 1 , out of the €94bn or 2% of GDP targeted ) , financed entirely by cash reserves as in January , which have also been used to offset a net borrowing shortfall of €2 6.2 bn. Expenditures totalled € 93.1 bn in January -February . Consumption expenditure rose moderately, by 4.1 % Y/Y, to € 83.7 bn , led by operating expenditures at €5.8bn (+26.6%, including a 33.5% increase in military procurement) . Public i nvestments grew by 1 04,2 % Y/Y to € 9.5 bn, but this increase is largely due to loans to social security schemes. If we exclude these financial instruments and look only at fixed-asset investments, they were down by €0.1bn on the year . Compared with a monthly target evenly distributed ( Chart 2 ), this month’s figure aligns with previous years’ patterns . R evenues reach ed € 59.4 bn. Th e year-on-year decline is due to a drop in taxes ( 7.6 % Y/Y to € 54.0 bn), particularly in consumer duties . Wage tax continues to r i se strongly by 7.9 %, while VAT declined by -3% Y/Y due to some revenues from import VAT shifted into March representing €2.8bn . Excluding this shift , overall receipts from VAT would have been up by 7% Y/Y. As with expenditure ( Chart 3 ), this month’s figure aligns with patterns seen in previous years . The fiscal balance still points to a deficit close to €90 bn, which is in line with a widening deficit. We still expect it to reach 3.8% of GDP in 2026 after 2.4% in 2025. February’s data still suggest a positive fiscal impulse in Q1 . H owever weaker than expected activity data , coupled with the conflict in the Middle East, which is expected to weigh on consumer purchasing power, leads us to revise our GDP growth downwards. We now expect a quarterly growth of 0.3% after 0.5% previously projected and following 0.3% in Q4.