By Prof. Dr. Jan Viebig, Chief Investment Officer, ODDO BHF SE.
After the German election on 23 February 2025, a coalition government between the CDU/CSU and the SPD is emerging. It would be the fifth black-red coalition in the history of the Federal Republic after 1966 to 1969, 2005 to 2009, 2013 to 2018 and 2018 to 2021. In our opinion, the German economy needs a German government that will be able to tackle the economic challenges decisively. The election programmes of the CDU/CSU and SPD offer overlaps in this regard.
Nevertheless, the positions of the CDU/CSU and SPD differ widely on key points of economic and social policy. For example, both partners want to reduce taxes, but the CDU/CSU primarily wants to bring down corporate taxes. It also wants to completely abolish the solidarity surcharge. The SPD, on the other hand, is primarily aiming for tax relief for low and average earners. While the CDU/CSU parties want to strengthen the innovative power of the economy, the SPD emphasises public investment in infrastructure in its programme.
In our view, fundamental economic reforms are necessary to strengthen Germany’s international competitiveness. We hope that the future government partners will find the determination and unity to do this. We assume that the federal government’s defence spending will continue to increase. This should give the German economy a significant boost. It is also to be expected that the debt brake in its current form will be reformed. However, a two-thirds majority in the Bundestag is required to make the necessary changes to the German constitution.
We assume that the prospect of a stable German government with only two partners will tend to strengthen the euro. It is positive news for the German stock market if a stable government emerges from this anticipated election. Companies from cyclical sectors such as capital goods, construction and insurance are particularly likely to benefit if the new German government takes a business-friendly course and if it also succeeds in easing economic relations with the USA. Nevertheless, we fear that a minimal consensus between the two government partners may not be enough to initiate the necessary reforms to strengthen the international competitiveness of the German economy.
Many German companies have been able to escape the weak growth in Germany by focusing heavily on global markets. For example, the companies listed on the German stock index DAX generate more than 80 percent of their sales abroad. But the global political situation threatens to become more conflict-ridden and more competitive. In the current environment, this opening also entails risks, especially for the pillars of the German economy, automotive manufacturing, chemicals and pharmaceuticals, and mechanical engineering. It is therefore more important to unleash growth forces in the economy and the European internal market. With a share of 53.7 percent, the EU remains the most important sales market for the German export industry.
The German stock market includes many companies that are well prepared to meet the current challenges in the global economy. Nevertheless, we recommend that investors do not rely solely on German stocks, but rather diversify their equity investments internationally. In our opinion, the outcome of this German election does not give rise to any immediate need for action for investors.
