Germany: Has the fiscal package finally reached the economy?

Germany's economy is poised for stronger growth in 2026, according to Citi analysts. The fiscal stimulus appears to be making an impact in certain sectors, though the effect is uneven. Defense spending from the core federal budget increased by 27% in the 12 months to August compared to the previous year. Special fund issuance for defense and investment reached €36.5 billion between January and August, accounting for 62% of the planned 2026 allocation.

While many projects are still at early stages, there are signs of increased activity. The €6 billion allocated for hospital transformation is one example, with much of the money effectively transferred to another fund. Infrastructure investment has lagged, with manufacturing orders only recently beginning to strengthen following the passage of the 2025 budget in September.

Despite this, manufacturing orders for durable consumer goods have increased among both domestic and foreign buyers, while domestic bulk orders for weapons and ammunition show a clearer link to government procurement. Infrastructure orders have risen 9.3% on a three-month-on-three-month basis, but the series is volatile and has not yet demonstrated a clear acceleration in investment.