This Sunday, parliamentary elections are taking place in Germany. As our main economic partner, with whom the Polish economy is inextricably linked, the outcome of these elections could significantly impact our economy and individual finances. Even though in the era of deglobalization Poland has started to take advantage of certain weaknesses of the German economy, the performance of many Polish industries is still heavily influenced by the situation in German industry. Therefore, it is worth considering how the election results in Germany will affect our economy and wallets. More so as the German economic model, despite facing significant challenges, sees its DAX index reaching new all-time highs.
In the case of Germany, we are dealing with a paradox: they have plenty of economic resources and know-how, but a dwindling economic model and uncertainty hinder growth and recovery from the crisis. In order to return to the growth trajectory, Germany needs an urgent economic recovery program. Unfortunately, polls suggest that voters could once again choose the status quo, and there might not be a sufficient majority in the new Bundestag to carry out real reforms.
From the perspective of financial markets, the Bundestag elections in 2025 are already significantly factored into current stock prices. Investors have been tracking political events for months, and markets react in advance, not waiting for election day itself. According to polls, the CDU/CSU is clearly in the lead, while the AfD could possibly take second place. The SPD and the Greens are battling for third, with the liberal FDP, the Left and the BSW striving to surpass the 5% threshold.
In this context, three issues will be key: how well the CDU/CSU will perform, who they will form a coalition with, and whether one coalition partner will be sufficient to form a government. Since Friedrich Merz rules out cooperation with the AfD, the real excitement may only come with the next election – especially if support for AfD continues to grow. In the short term, an unexpected election result or prolonged coalition negotiations could have the greatest impact on the markets. In the longer term, however, macroeconomic factors such as interest rates, inflation, and the global economic situation are more significant.
In the week leading up to the Bundestag elections, the DAX index is hitting record after record, while the German economy is still in recession. This divergence results from the fact that companies included in the DAX index generate the lion’s share of their revenues abroad – in markets where the economic situation (e.g., in the USA, China, France or Poland) is better than in Germany. Global corporations, such as SAP, Siemens or Infineon, are benefiting from megatrends in the areas of digitization, automation, and renewable energy sources.
A more accurate picture of the state of the German economy is provided by the MDAX and SDAX indices, which mainly include medium-sized companies and are more closely tied to the domestic market. It is there that the weakness of the economy can be seen much more clearly. Both indices are trading well below their historic highs, and over the past twelve months, they have achieved only a fraction of the returns recorded by the DAX.
At the same time, it should be emphasized that Germany – compared to other large world economies – remains relatively low indebted. The United States, Great Britain, Japan, Italy, France, and Canada are struggling with public debt exceeding 100% of GDP. Meanwhile, Germany’s debt is set to stand at 62.7% of GDP this year, and drop to 61% next year. That’s only slightly more than in Poland, where at the end of 2024 the public debt was at about 55% of GDP.
As a result, Germany stands out among other countries with a relatively low level of debt. Moreover, it is the only country in our comparison where the state’s debt has been falling over the last 20 years. This provides a safety buffer and the possibility to stimulate the economy. However, the aim is not for uncontrolled debt growth, but rather for a thoughtful use of resources that could ensure lasting growth. A key challenge for Germany is its aging infrastructure. By 2030, around 372 billion euro will be needed for roads, bridges and railways alone. Such investments support growth, create jobs, and increase the attractiveness of Germany as a business location.
Polish investors should keep a close eye on the election results in Germany, especially if they turn out to be significantly different from poll predictions. The current indications point to the most likely scenario being a clear victory for the CDU/CSU and a coalition government of this party with the SPD. Germany already has a long history of such coalitions, which, however, rarely lead to deep reforms. After the elections, we can also expect a lengthy period of negotiations and the shaping of the government’s program – which is also worth observing. Another key question is whether Germany will continue to focus exclusively on renewable energy sources, or if they will change their policy towards nuclear power. High energy prices continue to be a serious burden for German industry.
Paweł Majtkowski, analyst at eToro in Poland
Author: Editorial Team
Source: https://ceo.com.pl/niemcy-przed-wyborami-gospodarka-w-kryzysie-ale-dax-bije-rekordy-53478
