Production at the VW plant in Mden.
Sina Schuldt | Photo Alliance | Getty Images
The struggling German economy has been a big buzz among critics of Prime Minister Olaf Scholz’s government during its latest election campaign, but analysts say new leadership may not change these tides I’m warning you that it’s not.
It is now certain that Germany will soon have a new prime minister as voters prepare to head for the poll. Friedrich Merz of the Christian Democratic Union is a solid favourite.
Merz has not moved away from blowing up Scholz’s economic policies and linking them to the inactive state of Europe’s biggest economy. He argues that under his leadership the government will give the economy the necessary increase.
The experts talking to CNBC weren’t that sure.
“There’s a high risk that Germany will acquire a renovated economic model after the election, but it’s not a new model that has jealously jealous of competition,” ING’s global head of macros, Karsten Bruzeski told CNBC.
CDU/CSU Economic Agenda
The CDU is tied to the Christian Social Union, the local sister party at the federal level, and operates under a “typical economic conservative program,” Bruzeski said.
According to CDU/CSU campaigners, income and corporate tax cuts, reduced subsidies, reduced bureaucracy, reduced social profits, lower bureaucracy, support for innovation, support for innovation, start-ups, artificial intelligence, and This includes increased investment.
“The weaker part of the position is that CDU/CSU is not very accurate about how they want to increase their investment in infrastructure, digitalization and education. The intent is there, but the details aren’t. ” said Brzeski. It appears they are aiming to revive Germany’s economic model without completely overhauling it.
“It’s still a reform program to pretend that change can happen without pain,” he said.
Geraldine Dany-Knedlik, head of forecasts at the DIW Berlin Institute, noted that CDU is considering reaching gross domestic product growth of around 2% through a fiscal and economic program called “Agenda 2030.” I did.
However, reaching such a level of economic expansion in Germany has told CNBC not only temporarily but long term.
Germany’s GDP fell in both 2023 and 2024. Recent quarter growth measures have been caught up in the crisis of a technical recession. According to the latest reading, Germany’s economy shrunk by 0.2% in the fourth quarter, but compared to stretching in the previous three months.
Europe’s largest economy faces pressure in key industries like the automobile sector, infrastructure issues like the country’s railway network, and key industries like the housing construction crisis.
Dany-Knedlik also flagged the so-called debt brake. This is a long-standing fiscal rule set out in the German constitution, limiting the size of the structural fiscal deficit and the amount of debt the government can take.
Whether or not the clause should be overhauled was a major part of the financial debate ahead of the election. CDU ideally doesn’t want to change the debt brake, but Meltz says he could be open to some kind of reform.
“It seems quite unlikely that we will increase our growth prospects significantly without increasing our debt,” Dany-Knedlik said, and if public investments rise within the debt brakes, we will see a significant increase in taxes. He added that it would be inevitable.
“Considering that a 2% growth target will be reached within a four-year legislative period, Agenda 2030, combined with conservative attitudes towards debt destruction, reads more wish lists than simple economic growth programs. ” she said.
Franziska Palmas, senior European economist at Capital Economics, said that he would be “positive” for the economy after seeing some benefits in the CDU-CSU coalition’s plan, but warning that the resulting boost would be small I’m doing it.
“Tax cuts support consumer spending and private investment, but weak sentiments allow consumers to save most of their additional after-tax income, and businesses may be reluctant to invest,” she said. told CNBC.
Nevertheless, Palmas noted that not everyone leaves the winner from the new policy. Tax cuts on income will benefit middle-income and high-income households more than those with low incomes affected by potential reductions in social benefits.
The Union speaks first
After Sunday’s election, CDU/CSU will almost certainly be left to find a coalition partner for the Social Democrats or Greens to emerge as the most likely candidate.
The parties will need to mediate a coalition agreement that outlines their joint goals, including the economy – this proves to be a challenging task, said Palmas of Capital Economics.
“The CDU, SPD and Green have very different economic policy positions,” she said, pointing to contradictions with taxes and regulations. While CDU/CSU wants to reduce both items, SPD and Green are trying to raise taxes and oppose deregulation in at least some areas, Palmas explained.
Nevertheless, this group is likely to choose whether to partner with SPD or Green, and thus may retain power in potential negotiations.
“Therefore, the Union Agreement appears to include most of the CDU’s major economic proposals,” she said.
