CEE should benefit from fiscal impulse in Germany

Germany passing the legislation regarding the EUR 500 billion fund on infrastructure and climate make us revise the German growth forecast to 0.3% for 2025 (previously 0%) and more substantially for 2026 to 1.4% (so far 0.5%). In the latest CEE Special Report Fiscal impulse switched on we assume a positive spillover effect into the region. As the impulse has a more domestic character and does not originate in external demand stimulus, the pass-through to CEE may be slightly weaker compared to the global impulse. Nevertheless, the lift of market sentiment and anchoring expectations for positive development may lift the overall confidence, becoming a trigger for a higher growth path. We currently estimate the positive impact to range between 0.45 and 0.6 percentage points stemming from roughly 1 percentage point increase in German GDP in 2026 (that we would consider time T on the graph). Similar effects should be expected going into 2027. As far as fiscal stimulus coming from triggering escape clause for defense spending is concerned, we are more cautious. It will depend on the country whether it will decide to use additional fiscal space or not.