BERLIN (Reuters) - Germany must increase defense spending towards 2 percent of gross domestic product (GDP), Chancellor Angela Merkel said on Wednesday, but downplayed expectations it would meet this target in the near future.

"Our defense budget shows that we haven't reached the point where we should be if we talk about the expectations of our NATO partners," Merkel said in a speech to the Bundestag lower house of parliament.

"I know we still have a pretty long way to go to reach NATO's 2 percent target for defense spending and I can't promise we will get there in near future. But the direction has to be clear (...) that we approach this target and implement it."

(Reporting by Madeline Chambers and Paul Carrel; Writing by Sabine Siebold and Caroline Copley; Editing by Michelle Martin)