BERLIN (Reuters) -Germany’s debt is expected to increase to 74% of gross domestic product by 2030 from 62.5% last year due to the increase in spending on defence and infrastructure, according to a report from the European rating agency Scope seen by Reuters on Friday.
Germany’s parliament approved plans for a massive spending surge in March, shrugging off decades of fiscal conservatism.
“Despite rising borrowing, the pressure to consolidate the government’s core budget will increase over time,” said Scope analyst Julian Zimmermann.
Growing expenditure on interest payments and social security including pensions and health care will reduce fiscal flexibility, he said.
The proportion of available funds in the federal budget is therefore likely to fall from 24% to just 3% by 2035, according to Scope.
In order to maintain room for maneuver, structural reforms – for example in pensions and the labour market – are necessary, the report said.
An infrastructure fund of 500 billion euros that is also part of the spending surge could raise the growth potential of Europe’s largest economy to 1% from the current 0.7%, Scope said.
In comparison, the growth effect of the additional defence spending will be moderate, Scope said, calculating that for every euro invested by the state in defence, 50 cents will reach the domestic economy as a growth stimulus.
(Reporting by Rene Wagner and Maria Martinez, Editing by Friederike Heine)
