Production at the VW plant in Emden.
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The German economy that struggled was the main conversation between the critics of the chancellor Olaf Scholz during the last election campaign – but analysts warn that the new leadership may not turn these tides.
While voters are preparing to refer to the polls, now everything is except that Germany will soon have a new chancellor. Friedrich Merz of the Christian Democratic Union is a solid favorite.
Merz did not move away from the explosion of Scholz’s economic policy and connecting them with the largest economy of Europe. He claims that the government would give an economy the incentive he needs under his leadership.
The experts who spoke with CNBC were less sure.
“It is a big risk that after the election, Germany will receive a renovated economic model, but not a whole new model that makes the competition jealousy,” said Carsten Brzeski, Global Chief Macro in Ing, for CNBC.
CDU/CSU economic plan
The CDU, which is associated with the regional sister -party party at the federal level, leads to a “typical economic conservative program,” Brzeski said.
These include reducing income and income tax, less subsidies and less bureaucracy, changes in social fees, deregulation, support for innovation, start-up and artificial intelligence and increasing investment among other policies, according to the CDU/CSU campaign.
“The weak parts of the position are that the CDU/CSU is not very accurate that it wants to increase investments in infrastructure, digitization and education. Intention exists, but the details are not,” Brzeski said, noting that the union was noted that Sindi seems to be aimed at reviving it The economic model of Germany without completely remodeling it.
“It’s still a reform program that pretends that change can happen without pain,” he said.
Geraldine Dany-Knedlik, head of forecast at the Diw Berlin Research Institute, noted that the CDU also wants to achieve a gross domestic growth of products of about 2% through its fiscal and economic program called “Agenda 2030”.
But reaching such levels of economic expansion in Germany “seems unrealistic” not only temporary but also in the long run, she told CNBC.
German GDP declined both in 2023 and 2024. The recent quarterly growth readings are also tilted on the edge of the technical recession, which has been closely avoided so far. The German economy decreased by 0.2% in the fourth quarter, compared to the previous quarterly section, according to the latest reading.
Europe’s largest economy faces pressing in key industries such as Auto Sector, infrastructure problems such as the country’s rail network and the crisis for houses.
Dany-Knedlik also marked the so-called debtor brake, a long-standing fiscal rule built into the German Constitution, which limits the size of a structural budget deficit and how long the government can take over.
Whether or not the clause should be processed, it was a large part of a fiscal discussion ahead of the election. Although the CDU ideally does not want to change the debt brake, Merz said it may be open to some reforms.
“Increasing the prospect of growth significantly without increasing debt also seems unlikely,” DiW’s Dany-Knedlik said, adding that if public investments would increase in debt brake boundaries, a significant increase in taxes would be inevitable.
“Considering that the aim of growth of 2 percent will be within 4 years of legislation, the agenda 2030. In combination with the attitude of conservatives according to the break of debt to me, more desires are read than the direct economic growth program,” “she said.
Franziska Palmas, a higher economist of Europe in the capital economy, sees some benefits in the CDU-CSU union plans, saying that it is likely to be “positive” for the economy, but warning that it will result in reinforcement.
“Tax reduction would support consumer consumption and private investment, but poor feelings means that consumers can save a significant share in their additional income after tax, and companies may be reluctant to invest,” she told CNBC.
Palmas, however, pointed out that not everyone will win new policies. Income tax reduction would be used by households with medium and higher income more than those with lower income, which would also affect the potential reduction of social fees.
The coalition speaks in advance
After the election on Sunday, the CDU/CSU will almost certainly be left to find a coalition partner who will form a majority government, and the Social Democratic Party or Green Party has become the most religious candidates.
The parties will need to mediate in the coalition agreement in which their common goals are listed, including the economy – which could be shown by a difficult endeavor, said Palmas Capital Economics.
“CDU and SPD and Greens have significantly different positions of economic policy,” she said, pointing to differences with taxes and regulation. While CDU/CSU want to reduce both items, SPD and Green seek to increase taxes and opposition to deregulation in at least some areas, Palmas explained.
However, the group will retain power in all potential negotiations as they are likely to have their choice between partnership with SPD or greenery.
“Therefore, we suspect that the coalition agreement will include most of the main economic proposals for CDUs,” she said.
