Barclays Analysts’ Predictions on German Elections

Barclays (LON:BARC) analysts project that the snap elections in Germany on February 23 will likely result in a coalition government. The current political landscape in Germany is highly fragmented, suggesting that establishing a coalition could take several months.

Likely Coalition Dynamics

According to recent polls, the most probable outcome is a government led by the CDU/CSU (conservatives) in partnership with either the SPD (social democrats) or the Greens (environmentalists), as all parties have excluded collaboration with the AfD.

Economic Policy Focus

The election manifestos emphasize strong economic policies. The CDU/CSU’s strategy includes:
– Supply-side reforms
– Cuts in corporate and income taxes
– Repeal of certain laws from the Scholz administration

Conversely, the SPD and the Greens advocate for:
– A new public investment fund
– Targeted tax rebates for corporate investment

These initiatives would be funded by a reform of the German debt brake and increased taxes for higher earners.

Future Fiscal Policy Expectations

Barclays analysts expect the incoming coalition to adopt a pro-growth agenda, which may include corporate and income tax reductions along with rebates for private investments. However, specific details about financing and changes to the debt brake rule remain uncertain, particularly since the CDU/CSU has not provided comprehensive information.

The analysts anticipate that the new fiscal policy will not impede German economic growth, in contrast to the German Draft Budgetary Plan 2025 submitted to the European Commission in October 2024.

Although the fiscal policy is not expected to be as expansionary as the manifestos suggest, a slightly positive effect on growth for 2025 and 2026 is forecasted, supported by public investment contributions.

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