The selection of Germany will provoke a brand new tour – however could not change its economic system

Production in the VW plant in Emden.

Sina Schuldt | Image Allianz | Getty pictures

The fighting German economy was a major topic among the critics of the government of Chancellor Olaf Scholz during the recent election campaign – but analysts warn that a new leadership could not turn these tides.

While voters are preparing for the surveys, it is now anything but sure that Germany will soon have a new chancellor. The Friedrich Merz of the Christian Democratic Union is the firm favorite.

Merz has not prevented himself from blowing up Scholz's economic policy and combining it with the lackluster state of the largest economy in Europe. He argues that a government would give the boost it needs under his leadership of the economy.

Experts who spoke to CNBC were less certain.

“There is a high risk that Germany will receive a renovated economic model after the elections, but no brand new model that makes competition jealous,” Carsten Brzeski, Global Head of Macro, told InG.

The CDU/CSU economic agenda

The CDU, which is related to the regional sister party at the federal level, leads a “typical economic conservative program,” said Brzeski.

It includes income and corporation tax cuts, fewer subsidies and less bureaucracy, changes in social advantages, deregulation, support for innovations, start-ups and artificial intelligence and increasing investments, among other things, according to the CDU/CSU activists.

“The weak parts of the positions are that the CDU/CSU is not very precise how they want to increase investments in infrastructure, digitization and education. without completely revising it.

“It is still a reform program that states that changes can happen without pain,” he said.

Geraldine Dany-Kmedlik, forecast manager at the DIW Berlin research institute, found that the CDU also wants to achieve a gross domestic product growth of around 2% through its fiscal and economic program “Agenda 2030”.

But the achievement of such economic expansion in Germany “appears” not only temporarily, but also unrealistic in the long run, she told CNBC.

Germany's GDP took back both in 2023 and 2024. The most recent quarterly growth readings have also dealt shortly before a technical recession that has so far been closely avoided. The German economy shrank by 0.2%in the fourth quarter, compared to the previous three -month route, according to the latest reading.

The largest economy in Europe looks like in important industries such as the auto sector, problems with the infrastructure such as the country's rail network and a house building crisis.

Dany-Knedlik also marked the so-called debt brake, a long-term tax rule that is anchored in the German constitution and restricts the size of the structural budget deficit and how much debts the government can take over.

A large part of the fiscal debate before the elections was whether the clause should be revised or not. While the CDU ideally does not want to change the debt brake, Merz said that it may be open to a reform.

“It is also quite unlikely to increase the growth prospects without increasing debt,” said Dany-Kmedlik from Diw and added that if public investments would increase within the limits of the debt brake, considerable tax increases would be inevitable.

“Taking into account that a growth goal of 2 percent should be achieved within a law over 4 years, the agenda 2030 in combination with conservative attitudes compared to the debt break reads more for me a wish list than a simple program for direct economic growth.” she said.

Franziska Palmas, Senior Europe Economist at Capital Economics, sees some advantages for the plans of the CDU CSU union and says that they are probably “positive” for the economy, but warns that the resulting boost would be low.

“Tax cuts would support consumer expenses and private investments, but weak feeling means that consumers can save a significant share of their additional income after taxes, and companies may be reluctant to invest,” she told CNBC.

Palmas nevertheless pointed out that not everyone would bring a winner away from the new guidelines. Income tax reductions would benefit more households with medium and higher incomes than those with lower incomes that would also be affected by potential reductions in social advantages.

Coalition speaks ahead

After the elections on Sunday, the CDU/CSU will almost certainly find a coalition partner that forms a majority government, with the Social Democratic Party or the Green Party acting as the most likely candidates.

The parties must convey a coalition agreement that represents their common goals, including the economy – which could prove to be difficult undertaking, Palmas from Capital Economics said.

“The CDU and the SPD and the Greens have significantly different economic policy positions,” she said, pointing out discrepancies about taxes and regulation. While the CDU/CSU wants to reduce both objects, the SPD and the Greens try to raise taxes and oppose deregulation in some areas, Palmas explained.

However, the group will probably keep power in potential negotiations, since it will probably have the choice between the partnership with SPD or Greens.

“Accordingly, we suspect that the coalition agreement will include most of the CDU's economic proposals,” she said.