German Election Won't Rock The Boat For Investors
As Germany prepares to vote on Sunday, any significant changes are likely to be political rather than financial
3 min read
While all polls predict an Angela Merkel victory in the German election this weekend, the real intrigue lies in the coalition she will command.
But whichever parties join Merkel’s centre-right Christian Democrats (CDU), we do not expect any major disruption to the markets or Coutts portfolios.
Merkel’s re-election to a fourth term as chancellor, bringing her total time in the job to 16 years, would bring continuity – and that’s exactly what the markets have priced in.
So far the campaigning has not had any impact on economic developments and we do not expect that to change following Sunday’s result. The German economy is doing very well. Its gross domestic product is growing and the country is expected to achieve a budget surplus this year following record tax revenues.
As a result, the election campaign has focused on domestic issues such as tax and public spending, unlike the French election which focused on legislative reforms.
Become A Client
When you become a client of Coutts, you will be part of an exclusive network.
But their financial policies differ. The SPD and Greens are more open to some form of separate euro area budget than the other parties, while the FDP wants to limit any financial support for European Union countries and allow for them to leave the eurozone if necessary.
All parties except the FDP and AfD are open to transforming the European Stability Mechanism – Europe’s bailout fund – into a new European Monetary Fund, seen by many as an important next step towards deeper integration of the eurozone.
These positions are well known and discounted by investors and, whichever coalition takes the front seat of German politics, there will be no significant knock-on effects to financial markets one way or another.
Merkel at the helm should mean political and economic stability.
What’s next for Europe?
The Italian election expected next year has the potential to create more disruption. The anti-establishment Five Star Movement, which wants to hold a referendum on the euro, is doing well in the polls and has announced the youthful and popular Luigi Di Maio as its candidate.
But economic momentum in Europe is currently so strong we would not expect this to have any effect until early next year.
For now, the 61 million people eligible to vote in Germany on Sunday may make a difference to the make-up of their own government, but they are highly unlikely to have any significant impact on the economy.
The German election could bring change to the German political landscape but is not expected to impact financial markets. Polls continue to predict an Angela Merkel win, which would maintain stability and continuity for the country and the wider eurozone. Steady growth in Germany, along with key economic reforms in France, would be good news for the European equities held in Coutts portfolios.
About Coutts investments
With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.Discover more about Coutts investments