Germany: Fiscal Plan on Track, but Short of 2025 Target

The German fiscal plan came into effect in October and the November monthly report indicates a fiscal balance for the core budget of €73.4 bn ( chart 1 ), compared to a 2025 government budget target of €81.9 bn. With December typically recording a positive balance, the likelihood of reaching the target appears low. At the same time , special funds are also expected to end the year below target , with €18.1bn new debt drawn from the Bundeswehr fund and €18.8bn from the Climate and Neutrality Fund ( Table 1 ) compared to targets of €24.2bn and €37.2bn respectively . Expenditures are more dynamic than in previous years ( cha r t 2 ) , suggesting a realiz ation close to the target . They are expected to end the year below target , at -2% due to military spending falling short of government expectation , particularly military procurement that we expect to be out of target by €5bn and construction projects by €2b n . Revenues are more dynamic ( chart 3 ) than in previous years and should finish the year above target. While t he share of total revenues collected in December has averaged 15.9% in the past , it would only take 12.4% of target revenues this December to meet the 2025 target. We do expect revenues to exceed the target by a range of 2-3%. Overall, w e anticipate core budget will end the year with a fiscal balance between €55bn and €60bn ( Financed by new net borrowing) . Table 1: New debt drawn from special funds (€bn) Change in debt level Special funds* Jan Fev Mar Apr May Jun Jul Aug Sep Oct Nov Dec Target Bundeswehr Fund                         2024 0.4 1.7 2. 3 2.9 4.3 5.4 6.9 8.0 9.7 11.0 12.3 17.2   19.8 2025 0.6 1.4 2.9 3.9 4.3 5.3 7.2 8.2 10.3 11.7 13.3 24.2 Infrastructure and Climate Neutrality Fund                 2025                   12.8 18.8 37.2 * Cumulated from January of the specified year , Source: Ministry of Finance, Natixis CIB