Forming coalition will be easiest of next German chancellor's many challenges

Friday 28 February 2025

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Forming coalition will be easiest of next German chancellor's many challenges

February 2025 | Given the tensions that brought down the last German government, which was a three-party coalition, preference will be given to a two-party coalition to limit the amount of compromise necessary. The most likely coalition is between the CDU/CSU and the SPD. The German economy, which was in recession for the second year running in 2024, is the weakest economy in the eurozone. Tightening financial conditions, rising energy prices and weakening foreign demand (particularly from China) explain the poor economic performance. Uncertainty over tariffs has been weighing on confidence and domestic demand since the start of the year.

01 | The center-right Christian Democratic Union (CDU) and its sister party, the Christian Socialist Union (CSU), won the German election with 28.6% of the popular vote.

02 | CDU leader Friedrich Merz is set to be the next chancellor and will lead coalition talks to form a government at a time when Europe's biggest economy faces economic, trade and geopolitical challenges.

03 | Any reform of Germany's debt brake or the creation of a special fund will take time given the existence of a blocking minority, and is therefore unlikely to affect growth before 2026.

German Elections

Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of February 24, 2025. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.

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