Germany: lots of caution with sprinkles of optimism – a cross asset update

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Germany: lots of caution with sprinkles of optimism – a cross asset update

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Euro Area Viewpoint

Germany: lots of caution with sprinkles of

optimism – a cross asset update

A very different narrative than in the past 17 July 2026

The German macro narrative has changed a lot since 2019: persistent growth Economics

underperformance, big deficits and still fiscal slippage, political fragmentation. Yet, there Euro Area

is tentative reason for select and cautious optimism: spending of 2025 fiscal stimulus BofA Euro Economics

innovations is broadly on track (although quality is sub-optimal). Reform plans may not BofA Europe (Madrid)

be enough to fix all, but they are still good news compared to status quo. In our cross +44europeaneconomics@bofa.com20 7995 1476

asset update, the most obvious upside seems to be in equities, although part of that is Evelyn Herrmann

also due to the pronounced underperformance lately. Europe Economist

BofASE (France)

Economics: tracking fiscal stimulus, slippage and reform +33evelyn.herrmann@bofa.com1 8770 0292

Tracking fiscal impulse: spending progress seems ok. Construction data shows effects, Ruben Segura-Cayuela

but monetary policy hits the breaks. Tracking fiscal slippage: the new 2027 budget plan EuropeBofA EuropeEconomist(Madrid)

raises net borrowing needs, again, in spite of underlying tightening. Reform plans are +34 91 514 3053

ruben.segura-cayuela@bofa.com

good news, short and medium term, but comparisons to 2002-05 look stretched.

Rates Strategist

Rates: cheapening signs uncovered SphiaRates StrategistSalim

MLI (UK)

German bonds richened less vs swaps, and periphery spreads reacted less at times of +44 20 7996 2227

risk-off events recently. Reduced scarcity of Bund supply, a weak economy and sphia.salim@bofa.com