Germany: Will the new government find the formula to reignite growth?

Amid rising trade tensions between the United States and the rest of the world, the CDU/CSU and the SPD have officially established their coalition through the publication of a contract that will guide their policies over the next four years. Organized around five key themes, the economic aspect takes a center stage. In t his report , we analyze the challenges the coalition aims to tackle and the solutions it proposes. The SPD members still need to approve it by April 29 . If this happens - which we believe it will - the next step will be the election of the new chancellor, Friedrich Merz, 6 th of May, followed by the official establishment of the new government, after which the new reforms will be launched, with a priority on modifying the 2025 budget. The ambitious goal of increasing potential growth beyond 1% presents a real challenge, especially given the declining working-age population. In this context, revitalizing productivity will be essential to achieve a balance between improved competitiveness, wage growth, and the preservation of the social system. We still need to see which reforms will be prioritized and how quickly they will be implemented. But i t appears that the coalition will rely heavily on its financial flexibility in the short term to stimulate economic activity, leaving unresolved questions for the subsequent government to address. The information disclosed in the coalition contract validate what we expected with the use of the special fund starting this year. For these reasons, w e still expect GDP to grow by 0.3% in 2025 et 1.4% in 2026.