German election preview: Aiming at a grand reset
- 13 February 2025 (10 min read)
A much-awaited restart
Germany holds snap elections on 23 February - nine months ahead of schedule, following the collapse of Chancellor Olaf Scholz's ‘traffic light’ coalition with the Greens and Free Democratic Party (FDP) in November 2024.
Germany has endured a reality of no economic growth for the past four years. Expansion expectations are low given the reduced potential growth estimates from official institutions. Furthermore, the economy is highly vulnerable to any upcoming trade tariff disruptions. Germany requires a strong government to quickly implement a new set of policies to revive its short- and medium-term economic prospects.
Current polling suggests Christian Democratic Union (CDU) leader Friedrich Merz will become the next Chancellor. In this paper we review the German electoral system, assessing the different routes Merz may be able to take to form the future government coalition. Besides needing a stable absolute majority in the Bundestag, he will need to achieve the 66% majority required in Parliament to reform the constitutionally enshrined debt brake rule, should he elect to do so. Finally, we look at political parties’ proposals to restart growth.
Policy change appears to be on the horizon in Germany, but lengthy discussions ahead will come hand-in-hand with significant structural headwinds, making any decent economic rebound unlikely in the short term.
Subscribe to updates
Have our latest insights delivered straight to your inbox
Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.
Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.
Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.
Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ
In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.
© AXA Investment Managers 2024. All rights reserved