On February 23 there Germany sI will go to the polls: the Christian-democratic union (CDU) will be likely to return to the stationery. However, beyond the usual margin of surveys error, the precise projections on the Bundestag seats are burdened by uncertainty, this is what underlines François Cabau, Senior eurozone economist Axa Investment Managers stressing that given the electoral system. Finding a coalition partner, or more partners, will hardly be simple to form a stable majority.
Elections in Germany
We expect long discussions on the coalition of government, that they will probably prove to be controversial, in particular as regards the tax strategy of Germany. Time – underlines the expert – is essential to restart the economy, taking into account the short and medium term challenges it has to face.
While welcoming the change of the Economic line dShe Germany towards an agenda in favor of growth, “RWe hypothesize that there will be positive positive effects With a significant delay “.
The last five years were the worst of modern Germany in terms of economic performance, excluding the periods of the world wars, notes Elliot HentovHead of Macro Policy Research of State Street Global Advisors explaining that the reasons are well known: one structural loss of competitiveness due to the revision of energy costs, the growing Chinese industrial competition in the German key sectors and a chronic weakness of internal demand. Although unemployment has just started to rise and it is still a historical minimum of 6.2%, company insolvencies have increased vertiginously, reaching the highest level from the 2008 financial crisis.
Germany needs investments
As a rule, the macroeconomic adjustment would imply a resumption of growth growth, especially thanks to a weaker currency, but China has replaced German imports in its internal market. The other emerging markets remain weak and fears of US protectionism brake investments in the export sector.
It is all a matter of tax priorities
The European elites have identified The measures necessary to relaunch economic growth. These include a substantial impulse to public investments in subfinited infrastructures, a large-scale de-regulation and incentives to finance greater risk propensity in the economy. In this regard, Draghi’s recent report applies particularly to Germany, as it invites you to increase investments, to promote innovation and reform competition.
The problem is that German politicians they were unable to adopt the necessary changes. The current election campaign has at least led to a debate on the need to reform the constitutional brake to the debt that limits the structural tax deficits to 0.35% of the GDP, but there is still no clear majority in favor of an overall reform. The center-left parties asked for a reform and the creation of a public investment fund outside the debt limit, while the center-right parties count only on slight retouches to extra-viland financing. In short, it is difficult to imagine a great change on the most central question of these elections, or the tax position of Germany.
The irony of fate He wants one of the great advantagesMpective remained in Germany both the country’s tax space. With 62% of the GDP, the relationship public debt/GDP It is considerably lower than that of other large economies developed. Given that Germany can self -childhood at an average rate of less than 2.5%, it would be easy to identify a public expenditure that generates greater returns. Any public investment would also be able to increase the country’s productivity rate and therefore should be fiscally positive in the long run.
The most complex political challenges – explains the expert – concern the way In which to deal with the main external problems, such as Chinese competition, US protectionism and increase in safety costs. The internal challenges include the search for new approaches to promote energy transition and at the same time preserve competitiveness, digitize the economy, create new sources of innovation and balance demographic aging with the social problems deriving from the excess of immigration. In this context, the increase in public investments should be an achievable goal, but we only expect a lower nominal tax push to 1% of the GDP by 2026.
Implications for investments
The modest tax expansion of Germany will not be enough to change the fundamentals of investments for German and European assets. A weak economic growth, even if stronger than 2024, combined with the decline in inflation, will keep the decreasing bond yields and the weak euro in the short term. However, an issue of Bund Major and the growth gap in favor of the European suburbs involve a narrowing of the spreads between bunds and peripheral bonds. France is an exception, where political paralysis and tax excesses continue to weigh on long -term government bonds (OAT). The German actions have recorded a good performance recently and the next government will probably be more favorable to companies, stimulating moderate optimism in the market. However, German companies remain vulnerable to global growth trends: this means that a reduction in the protectionism of the United States and a Chinese stimulus stronger than expected “would represent an important Tail wind for the actions “.
