Germany: domestic stimulus versus external constraints

A year ago, against a backdrop of persistent economic stagnation, Germany was gearing up for early general elections. As soon as it was elected, the new government freed itself from the budgetary straitjacket and promised a sharp rise in spending on infrastructure and defence, raising high hopes of a rebound in economic growth. The rebound has still to be confirmed. Industrial activity appears to have hit a low point in 2025. Rolling out the fiscal stimulus will not really begin until 2026. The strong fiscal impulse is a tailwind, but at the same time there are also the headwinds of new world trade order (US protectionism + Chinese competition). Navigating these currents promises to be tricky.