Credit Mutuel AM: How to gain exposure to the German recovery?
Activity within the Eurozone has been weak for almost three years now, with growth of 0.4% and 0.9% respectively in 2023 and 2024, while 2025 shows no signs of improvement. The main reason for this activity is the problems encountered by the two largest economies: France and Germany. Unfortunately, little improvement is in sight for France given the political instability and lack of fiscal room. In Germany, however, the situation has changed drastically in recent months...
Germany has announced a historic recovery plan aimed at strengthening its infrastructure and defense capabilities. This plan includes €500 billion in infrastructure investment (energy, digitalization) and the ability for the Länder to run deficits of up to 0.35% of GDP. This represents a significant shift in dogma for a Germany that has been previously inflexible regarding public deficits. However, the latter must reinvent its growth model based on its industrial base, whose production has fallen by almost 13% since the end of 2017. The implementation of 25% customs duties on vehicles has also recently posed a new threat, prompting the German authorities to abandon their wait-and-see approach.
The other component of the German recovery plan is the Readiness 2030 plan (formerly ReArm Europe), which allows for an increase in defense spending of up to 1.5% of GDP without triggering excessive deficit procedures. At the same time, Germany has announced the exclusion of defense spending exceeding 1% of GDP. The objective is to mobilize up to €800 billion to strengthen the EU's defense capabilities, including approximately €300 billion for Germany alone. Overall, these recovery plans would represent a boost of around 0.7% for the European Union countries, but significantly more for Germany:
- If all these plans are combined, spending over the next five years could reach 2.5% of GDP per year through 2030.
- Germany is also undergoing significant transformation in the energy space, having recently removed all opposition to French nuclear power.
Growth forecasts are currently 1.1% for 2026 (Bloomberg consensus as well as EU forecasts) and 1.7% for 2027. As in the United States following the various post-Covid stimulus plans, it now seems very likely that German growth will be significantly revised upwards over the next few years. The industrial sector should be one of the best positioned to benefit from these stimulus plans; specifically, everything related to digitalization, construction, defense, and energy efficiency should be at the beginning of a period of sustained demand.
