Germany is on the verge of a critical political shift as the federal elections on February 23 approach. This election will play a decisive role in shaping the country’s economic policies, energy strategies, and global competitiveness. With economic uncertainty at an all-time high and Germany facing mounting challenges, the outcome will have significant implications not just for the nation but for Europe as a whole.
Germany’s economy, the third-largest in the world, has faced sluggish growth in recent years, with the government recently slashing its 2025 growth forecast to a mere 0.3%. High energy costs, declining labor productivity, and shrinking export market share have weakened the country’s industrial strength. Since the COVID-19 pandemic, Germany’s per capita income has fallen behind, highlighting concerns about competitiveness.
The global economic policy uncertainty index has reached its highest level since the peak of COVID-19. This uncertainty discourages business investment and consumer spending, adding further strain to an already fragile economy. Despite these concerns, the German stock market has, however, shown surprising resilience, with the DAX emerging as one of the best-performing indices year-to-date. Investors appear hopeful that external demand and policy shifts may rejuvenate growth.
At the heart of the election is a fundamental policy debate about Germany’s future economic direction. The CDU/CSU led by Friedrich Merz, is poised to win the most seats in the Bundestag. Their proposed policies include the construction of 50 gas-fired power plants to reduce energy costs and support industrial recovery. However, the feasibility of these plans depends on coalition dynamics.
A CDU/CSU-led government without the Greens would have greater flexibility to implement industrial and energy reforms. However, recent polling trends suggest that forming such a coalition may be difficult. The CDU/CSU has been losing ground, while the Greens have gained support following a controversial attempt by Merz to push through an immigration bill with the backing of the AfD. This move sparked internal divisions and public criticism, making coalition negotiations more complex.
Germany’s economic struggles are closely tied to global trade policies, particularly its relationship with the United States and China. US tariffs on China have intensified competition for German exports, while rising energy prices—exacerbated by geopolitical tensions—have weakened manufacturing competitiveness. A potential second Trump presidency could introduce further trade tensions, particularly as Germany’s exports to the US have grown significantly in recent years.
With the elections just weeks away, the question remains: Can Germany enact the necessary policy shifts to restore growth and maintain its standing as Europe’s economic powerhouse? The decisions made in this election will shape the country’s trajectory for years to come.
