Germany Federal Spending Slightly Below Expectations in July, Federal Deficit YTD Remains Above Our Expectations

Economics Research 20 August 2026 | 9:59AM CEST

Germany: Federal Spending Slightly Below Expectations in July, Federal Deficit YTD Remains Above Our Expectations

BOTTOM LINE: German federal expenditures in July came in at EUR 51.8bn, slightly Niklas Garnadt | below our EUR 53.3bn forecast but EUR 7.1bn higher than in July 2025. Spending in Goldman Sachs Bank Europe SE the main budget again was slightly below our expectations, while spending in the military fund was in line with expectations and spending in the infrastructure and climate fund was slightly ahead. With revenues slightly below our expectations due to weaker tax revenue, the fiscal balance was more in line with our forecast and remains about 0.3% of GDP wider than we expected at the start of the year. The fiscal data since the start of the year support our view of a notable fiscal expansion in 2026, which we expect to provide a fiscal impulse of around 0.6pp.

Expenditures in the Main Budget (July): EUR 46.8bn (vs. GS expected EUR 48.6bn and 2025 Realized EUR 42.9bn)

Expenditures (implied) in the Military Fund (July): EUR 1.5bn (vs. GS expected EUR 1.5bn and 2025 Realized EUR 1.9bn)

Expenditures (implied) in the Infrastructure and Climate Fund (July): EUR 3.5bn (vs. GS expected EUR 3.2bn and 2025 Realized EUR 0bn)

1. German federal spending in July was slightly below our expectations. Overall spending across the main budget and the off-budget funds for the military and for infrastructure & climate came in at EUR 51.8bn, below our expectation of EUR 53.3bn but EUR 7.1bn higher than spending in July 2025.

2. Spending stood at EUR 46.8bn in the main budget in July, about EUR 1.8bn below our expectation but EUR 3.8bn above July last year. The downside surprise was due to lower-than-expected defence and other spending while social spending and investment were a touch above our projection.

3. Spending in the off-budget military fund (implied by the fund’s issuance activity) stood at EUR 1.5bn, in line with our expectations but slightly lower than last year’s EUR 1.9bn. YTD spending in the military fund is up EUR 2.9bn (+41%) from last year and total defence spending is up EUR 11.0bn (+30%). That said, defence spending continues to track about 10% below our projection, and is at risk of falling significantly short of the full year target, although the strong seasonality of defence spending, which typically sees a strong pickup in Q4, leaves our expectations still attainable. Spending in the infrastructure fund (implied by the fund’s issuance activity) came in at EUR 3.5bn, slightly above our forecast of EUR 3.2bn. Data from

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the Ministry of Finance suggest spending of EUR 1.9bn on federal programmes and EUR 0.2bn on state level programmes, and thus imply EUR 1.4bn spending on the climate transformation fund, somewhat stronger than we anticipated. As the infrastructure & climate fund was only established last autumn, there are no comparable numbers for last year, but total spending out of this fund remains notably higher than the decrease in infrastructure-related items in the main budget compared to last year.

4. As revenues in the main budget came in below our projections due to lower tax revenues, the fiscal deficit in the main budget was broadly in line with our expectations at EUR -16.4bn (vs. EUR -16.1bn expected). Net issuance in the military fund stood at EUR 1.5bn and in the infrastructure & climate fund at EUR 3.5bn, adding up to a total fiscal deficit of EUR -21.5bn in July (vs. EUR -20.8bn expected). The cumulative fiscal deficit through July stood at EUR -90.2bn, EUR 14.5bn (0.3% of GDP) wider than we anticipated at the start of the year and EUR 49.5bn (1.1% of GDP) wider than in July last year.

5. The fiscal data since the start of the year support our view of a notable fiscal expansion in 2026, which we expect to provide a fiscal impulse of around 0.6pp.1 Owing to a notably larger fiscal deficit year-to-date than we expected, we continue to see small upside risk to our fiscal…