Investing.com – Economic Momentum Expected in Germany

Following the snap Bundestag elections on February 23rd, Germany could experience new economic momentum, according to Morgan Stanley.

Fiscal Shift on the Horizon?

The US investment bank anticipates a relaxation of strict budget rules and additional government spending, boosting economic growth by 0.3 percentage points in 2025. Analysts, led by Jens Eisenschmidt, state a likely turnaround in fiscal policy, with reforms to the debt brake and new special funds.

Calculating an increase in the budget deficit by 0.2 percentage points, they project a GDP rise of 0.15 percentage points.

Who Could Benefit?

Morgan Stanley highlights positive prospects for energy providers like E.ON SE (ETR:EONGn) and Elia (EBR:ELI) due to plans for a 30 billion euro reduction in network charges. This could decrease electricity prices for industries by 26 percent and for households by 19 percent.

The automotive industry could also see benefits, with an upgraded rating to "In-Line" due to expected demand increase from lower energy costs and possible state subsidies. Challenges, however, remain with competition from Chinese manufacturers.

Changes to the debt brake require a two-thirds majority across parliamentary chambers, necessitating cross-party consensus, as analysts caution.

Better Growth Prospects – But Also Risks

Morgan Stanley increased its growth forecast for Germany in 2025 from 0.5 to 0.8 percent, driven mainly by anticipated investments and rising consumption, particularly benefiting MDAX companies.

Despite optimism, risks like U.S. tariffs and declining industry sentiment could hinder growth. Nonetheless, a sentiment-driven rally in the German stock markets, particularly among mid-sized companies, is conceivable, provided structural issues are addressed.