Production at the VW plant at Emden.
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The fighting German economy was the main point of conversation among the critics of the government of Chancellor Olaf Scholz during the last election campaign – but analysts warn that new leadership may not reverse these tides.
When voters are preparing for the polls, it is now almost certain that Germany will soon have a new chancellor. Friedrich Merz from the Christian Democratic Union is a favorite.
Merz did not refrain from blowing up Scholz's economic policy and connecting them to the small state of the largest economy in Europe. He claims that the government under his leadership would give the economy he needs.
Experts talking to CNBC were less sure.
“There is a high risk that Germany will receive a renovated economic model after the election, but not a completely new model, which makes the competition jealous,” said CNBC Carsten Brzeski, global head of Macro at ING.
CDU/CSU economic program
CDU, which at federal level connects with the Regional Sister Party of Christian Social Union, works in a “typical economic conservative program,” said Brzeski.
This includes reduces in income and corporate taxes, less subsidies and less bureaucracy, changes in social benefits, deregulation, support for innovation, start-up and artificial intelligence, and increasing investments among other principles, according to the CDU/CSU campaign.
“Poor parts of the position lies in the fact that CDU/CSU is not very precise as to how it wants to increase investments in infrastructure, digitization and education. The intention is available, but the details are not, “said Brzeski, noting that Union Union seems to be aimed at reviving the German economic model without a full review.
“This is still a reform program that pretends that change can occur without pain,” he said.
Geraldine Dany-Knoredlik, head of forecasting at the Research DIW Berlin Institute, noticed that CDU also wants to achieve gross domestic product growth by about 2% thanks to the tax and economic program called “Agenda 2030”.
But achieving such a level of economic expansion in Germany “seems unreal” not only temporarily, but also in the long run, said CNBC.
The German GDP fell in both 2023 and 2024. The last quarterly growth readings also played at the edge of a technical recession, which until now was narrowly avoided. The German economy decreased by 0.2% in the fourth quarter, compared to the previous three -month episode, according to the latest reading.
The largest economy in Europe faces pressure in key industries, such as the car sector, infrastructure problems such as the national railway network and the crisis of building a house.
Dany-Knedlik also marked the so-called debt brake, a long-lasting fiscal principle, which is recorded in the German constitution, which limits the size of the structural budget deficit and how much debt the government can take.
Whether the clause should be moved was a large part of the fiscal debate before the election. Although CDU does not perfectly want to change the debt brake, Mierz said that he could be open to some reform.
“A significant increase in growth prospects without increasing debts also seems unlikely,” said Dany-Knoredlik DiW, adding that if public investments increase within the debt brake boundaries, significant tax increases would be inevitable.
“Considering the 2 % growth goal within the 4 -year period of regulations, the 2030 program in combination with the approach of conservatives to the debt break reads more wishes than a simple economic growth program,” “she said.
Franziska Palmas, senior European economist at Capital Economics, sees some benefits for the plans of the CDU-CSU Union, saying that they will probably “be positive” for the economy, but warning that the resulting strengthening would be small.
“Tax reductions would support consumer expenditure and private investments, but poor moods mean that consumers can save a significant share in their additional income after taxation, and companies can be reluctant to invest,” said CNBC.
Palmas pointed out, however, that not everyone would leave the winner from the new politics. Considing income taxes would bring the benefits of medium and higher income households than those with lower income, which would also have a potential reduction in social benefits.
The coalition speaks ahead of us
After the Sunday election, CDU/CSU will almost certainly remain to find a coalition partner, to create a majority government, and the social democratic party or green party will appear as the most likely candidates.
The parties will have to collect a coalition agreement presenting their common goals, including the economy – which may be a difficult undertaking, said Palmas Economics.
“CDU, SPD and Greens have significantly different economic policy positions,” she said, pointing to tax and regulation discrepancies. While CDU/CSU wants to reduce both items, SPD and Greens are trying to raise taxes and oppose deregulation in at least some areas, Palmas explained.
However, the group may maintain power in potential negotiations, because it will probably have a choice between cooperation with SPD or Greens.
“Therefore, we suspect that the coalition agreement will cover most of the main economic proposals of CDU,” she said.
