Germany's record budget surplus is not as big as it seems and the federal government's fiscal room to maneuver is rather limited, Chancellor Angela Merkel

said yesterday.

"If you look at the federal level alone, the surplus is rather small," Merkel said during a joint news conference with Lithuanian Prime Minister Saulius Skvernelis.

Merkel said the government would further increase spending on defence, as promised to NATO allies, as well as on domestic security and social improvements.

"At the same time, we don't want to take on new debt. So the room for maneuver is rather limited," Merkel added.

The German state posted a record budget surplus of 23.7 billion euros ($25 billion) in 2016, creating conditions for solid economic growth in 2017 underpinned by higher state and household spending.