Investing.com – German stimulus measures and interest rate cuts are tipped to support solid growth in the euro zone next year, according to analysts at Barclays.
In a note to clients, the brokerage said that, after a period of relative underperformance since 2022, Germany is expected to benefit from the launch of a large, deficit-financed fiscal expansion program.
Faced with increased worries over the reliability of security backing from the U.S., Germany’s parliament approved in March a sweeping defense and infrastructure spending program worth hundreds of billions of euros. Crucially, lawmakers in Berlin agreed to relax longstanding rules limiting government borrowing in order to help fund the expenditures.
The changes come as the European Union — which includes Germany and a swathe of other major economies in the region — is attempting to negotiate a new trade deal with Washington. U.S. President Donald Trump has delayed his elevated “reciprocal” tariffs on the bloc until early July, but the outlook for a trade agreement remains unclear.
Meanwhile, the European Central Bank, who oversees the euro zone currency area, has embarked on a series of interest rate reductions in response to signs of cooling inflationary pressures and tepid growth.
“Like its European peers, Germany should benefit from reduced policy uncertainty once a new trade regime is agreed, as well as from the transmission of monetary easing,” the Barclays analysts led by Emmanuel Cau wrote.
They added that, unlike peers such as France, Italy and Spain, Germany has the fiscal space to pursue expansion plans that will promote growth “beginning next year.” Starting in mid-2026, Germany, Europe’s traditional economic powerhouse, is seen outperforming all three of these countries.
Thanks in part to the expectations around the German stimulus measures, European growth appears set to “return to trend” by the end of next year, while the medium-term investment thesis for European equities is “starting to improve,” the analysts argued.
This is “most bullish for German equities,” they said. Hensoldt (ETR:HAGG), BASF (ETR:BASFN), E.ON (ETR:EONGn), RWE AG ST O.N. (ETR:RWEG), Deutsche Post AG NA O.N. (ETR:DHLn), Commerzbank (ETR:CBKG), Deutsche Bank (ETR:DBKGn), and Volkswagen (ETR:VOWG_p) were all named as potential beneficiaries of the German stimulus drive.
Earnings among wider European companies are also estimated to grow in the double-digits between 2026 and 2027, with the benchmark Stoxx 600 seen finishing next year at 620. On Wednesday morning, the index was last trading at 541.42.
The analysts anticipated a “meaningful demand uplift” as well in a range of sectors, including defense, chemicals, utilities, real estate, construction and capital goods.
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