"We will revive Germany's economy" - Chancellor Merz: Business-friendly reform, increased government spending
Chancellor Friedrich Merz vowed to revive the German economy, which he said would achieve growth of at least 1% next year thanks to business-friendly reforms and a planned increase in government spending.
Seeking to project unity, Merz and Finance Minister Lars Klingbeil, whose center-left SPD is the junior coalition partner, also rejected suggestions that internal squabbles in the government were hampering efforts to reverse a slump in opinion polls.
The economy ministry in April cut its growth forecast for 2026 to 0.5% from 1%, citing higher energy costs linked to the war in Iran.
Pressure on Merz's coalition has increased after a cabinet reshuffle angered members of his party and raised questions about the government's effectiveness as it seeks to avoid a far-right challenge in state elections next month.
Merz and Klingbeil said recent economic data and business surveys pointed to an improving outlook. After years of weak growth, Europe's largest economy expanded more strongly in the second quarter than initially estimated, while business morale rose to its highest level in a year in August.
Klingbeil said that about 50 billion euros had been allocated from a special 12-year infrastructure fund of 500 billion euros, agreed in early 2025. "This is currently the strongest trend that drives growth. We would be in recession without this investment push," the finance minister said.
But the debt-fueled spending boost comes as German 10- and 30-year borrowing costs hit 15-year highs last week, with bond yields in major Western economies including the US and Japan also rising. Klingbeil, who on Monday attributed the higher borrowing costs to more expensive energy following the US-Israeli war on Iran, stressed that Berlin's credibility and ability to refinance were fully intact.
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