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The struggling German economy has been a major topic among critics of Prime Minister Olaf Schultz’s administration during the latest campaign – but analysts warn that new leaders may not turn those trends around.
When voters are ready to go to the polls, it is almost certain that Germany will soon have a new prime minister. Friedrich Merz of the Christian Democratic League is the company’s favorite.
Meers did not evade Scholz’s economic policies, nor did he associate it with the bland state of Europe’s largest economy. He believes that the government under his leadership will bring the economy the strengthening it needs.
The experts who spoke to CNBC were not sure.
“The risk of Germany getting a refurbished economic model after the election is high, but not a whole new model of jealousy competition,” Carsten Brzeski, global head of Ing, told CNBC.
CDU/CSU Economic Agenda
Burzsky said CDU, which is associated with the regional sister party of the Christian Social Alliance at the federal level, is adopting a “typical economic conservative plan.”
According to CDU/CSU activists, it includes income and corporate tax cuts, less subsidies and less bureaucracy, changes in social welfare, deregulation, support for innovation, startups and artificial intelligence, and other policies investment.
“The weak position is that CDU/CSU is not very precise in terms of investment in infrastructure, digitalization and education. It seems that the goal is to restore Germany’s economic model without a complete overhaul.
“It’s still a reform plan, and pretending that changes may not be painful,” he said.
Geraldine Dany-Knedlik, head of forecasts at DIW Berlin Institute, noted that CDU also hopes to reach GDP growth again through its fiscal and economic plan “Agenda 2030”.
But it seems unrealistic to reach this level of economic growth in Germany for the time being, and for a long time.
Germany’s GDP fell in both 2023 and 2024. Recent quarterly growth readings have also fallen on the brink of a technical recession, which has so far been narrowly avoided. According to the last three months, the German economy fell 0.2% in the fourth quarter read.
Europe’s largest economy is in key industries such as the automotive industry, such as infrastructure such as the country’s railway network and housing construction crises.
Dany-Knedlik also marked the so-called debt brake, a long-standing fiscal rule listed as the German Constitution that limits the size of the structural budget deficit and the government can bear it debt.
Whether the clause should be overhauled is an important part of the pre-election fiscal debate. While CDU doesn’t want to change the debt brakes, Melz said he might embrace some reforms.
“It seems unlikely to significantly increase the growth outlook without increasing debt,” said Dany-Knedlik of DIW.
“Given that it will reach a 2% growth target over the 4-year legislative period, combined with the conservative attitude towards my debt disruption, the 2030 agenda attitude is more like a wish list than a direct economic growth plan,” she said. .
Franziska Palmas, a senior European economist in capital economics, saw some benefits of the CDU-CSU alliance program, saying they may be “positive” to the economy, but warned of the boost resulting from this It will be very small.
“Tax cuts will support consumer spending and private investment, but weakness means consumers may save a large portion of their additional after-tax revenue, and companies may be reluctant to invest,” she told CNBC.
However, Palmas points out that not everyone will get a winner from the new policy. Cutting income taxes will benefit middle- and high-income families from lower incomes, and lower income families will also be affected by potentially reducing social welfare.
Alliance talks
After Sunday’s election, CDU/CSU will almost certainly leave a coalition partner to form a majority government, and the Social Democrats or the Greens become the most likely candidate.
Palmas of Capital Economics said the parties will need an alliance agreement that outlines their common goals, including the economy, which could be a daunting task.
“CDU, SPD and the Greens have significantly different economic policy stances,” she said. Palmas explained that while CDU/CSU wants to reduce both projects, SPD and Greens are trying to raise taxes and oppose at least some Regional deregulation.
However, the group may hold power in any potential negotiations, as it is likely to be a choice between working with the SPD or the Greens.
“So we suspect that the alliance agreement will include most of the major economic advice of the CDU,” she said.
