Germany: Economy growing strongly - ING

According to Carsten Brzeski, Analyst at ING, with a difficult new government coalition in the making for Germany, the economy is still doing what it has been doing over the last nine years: growing strongly.

Key Quotes

“Germany is still digesting the outcome of the federal elections on 24 September. The election result was a strange combination of political earthquake and stabilisation. Angela Merkel will remain chancellor, but will very probably be a weaker chancellor in a less stable government than over the last twelve years. The rise of the AfD could increase pressure in her own party (and its Bavarian sister party) to move further to the political right, while a coalition together with the FDP and the Greens is anything but a done deal and is politically challenging. After the regional elections in Lower Saxony on 15 October, all involved parties should make first steps towards the so-called “Jamaica” coalition. Despite political tensions and differences, Germany’s traditional craving for stable governments currently excludes other unprecedented options like a minority government. If – unexpectedly - the “Jamaica” option was to fail, pressure on the SPD to rethink its decision to move into opposition could increase again.”

“What would such a government have in store for the German economy and for Europe? Regarding the economy, a “Jamaica coalition” could bring more investments, particularly in digitalization and education. Some tax relief could also be possible. However, there could be little in store to tackle increasing wage inequality, keeping German wage increases relatively moderate and consequently not making the ECB’s life any easier. At the same time, topics such as energy transition and the future of the automotive industry are clearly potential stumbling blocks.”

“If the possible “Jamaica” coalition follows the example of other unprecedented “Jamaican” performances, the current mature cycle of the economy could easily be extended by a couple of more years and become “cool runnings”. And maybe, possible reservations on further Eurozone integration could be tackled by Emmanuel Macron with famous Jamaican words: “Get up, stand up, stand up for your rights. Get up, stand up, don’t give up the fight.”