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What election projections mean for Germany's ailing economy
Published by Global Banking & Finance Review®
Posted on February 23, 2025
3 min readLast updated: January 26, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on February 23, 2025
3 min readLast updated: January 26, 2026
Germany's CDU/CSU wins the election, leading to complex coalition talks and potential economic policy changes impacting the economy.
By Maria Martinez
BERLIN (Reuters) - Germany's opposition conservatives CDU/CSU won the national election on Sunday, putting leader Friedrich Merz on track to be the next chancellor while the far-right Alternative for Germany (AfD)came in second, its best ever result, projections showed.
Germany's election results set the stage for protracted coalition talks.
Please see reactions from analysts and economists.
CARSTEN BRZESKI, GLOBAL HEAD OF MACRO AT ING
"Coalition negotiations will be extremely complicated. Assuming that we would get a three-party coalition, it will be the smallest common denominator for the economy. If the three-party coalition includes the FDP, big fiscal stimulus will not be on the agenda. Instead, we will get some tax relief, stricter immigration and more defence spending.
However, given that CDU and FDP stand far away from the SPD on economic policies, a three-party coalition runs the risk of more muddling through and more stagnation unless all parties involved realise that this is the last chance to bring change and to prevent the AfD from getting stronger."
CYRUS DE LA RUBIA, CHIEF ECONOMIST AT HAMBURG COMMERCIAL BANK
"For Germany's competitiveness, a CDU-SPD coalition could prove positive if the coalition partners approach things courageously. Between the CDU/CSU and the SPD there could be a kind of division of labour. The CDU would enforce a supply-oriented policy. It's about significant tax cuts for companies, radical bureaucracy reduction, and a reform of the unemployment benefits with the aim of maintaining incentives to work and saving money."
"The SPD, for its part, would insist on finding ways to invest more in infrastructure. Without more scope for spending, the SPD is unlikely to seriously enter into coalition talks after the traffic light coalition ultimately failed because an agreement could not be reached on the distribution of resources kept scarce by the debt brake."
"If this task division succeeds - supply policy by the CDU/CSU, demand policy by the SPD - the economic turnaround could really succeed."
JAN VON GERICH, CHIEF MARKET STRATEGIST AT NORDEA:
"The exit polls do not yet offer us definite answers, but it still looks like a CDU/CSU and SPD government is the most likely one. They should be able to form a majority government, which is positive for the outlook. Also positive for sentiment is that the AfD does not appear to have done better than the recent polls suggested."
"Whether the largest parties will have enough votes to alter the debt brake remains to be seen and is one of the interesting questions that we do not yet have definite answers to."
FREDERIK DUCROZET, HEAD OF MACROECONOMIC RESEARCH AT PICTET WEALTH MANAGEMENT
"The most market-friendly coalitions are still possible in theory, including the Grand Coalition and the Kenya one with the CDU/CSU, SPD and the Greens."
"If you have the Free Democrats (FDP) and BSW above 5%, you could still reach a blocking minority with the two of them. So that’s the big uncertainty."
(Reporting by Maria Martinez, Rene Wagner, Dhara Ranasinghe and Yoruk Bahceli, editing by Kirsti Knolle)
Coalition negotiations are expected to be extremely complicated, particularly if a three-party coalition is formed. The CDU and FDP have significant differences from the SPD on economic policies, which could lead to stagnation.
A CDU-SPD coalition could be beneficial for Germany's competitiveness if both parties approach their responsibilities courageously. This could involve a division of labor in supply and demand policies.
The most market-friendly coalitions still possible include the Grand Coalition and a Kenya coalition involving the CDU/CSU, SPD, and the Greens.
Whether the largest parties will have enough votes to alter the debt brake is a key question that remains unanswered following the election results.
Analysts express concern that without a clear agreement on economic policies, the coalition could lead to more muddling through and stagnation, unless all parties recognize the need for decisive action.
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