Morgan Stanley anticipates economic tailwinds for Germany following new elections

Investing.com - Following the snap Bundestag elections on February 23rd, Germany could experience new economic momentum. At least, that's what Morgan Stanley expects in a current analysis. The US investment bank anticipates a relaxation of strict budget rules and additional government spending. This would boost economic growth by 0.3 percentage points in 2025. Fiscal Shift on the Horizon?

"A turnaround in fiscal policy seems likely. Reforms of the debt brake and new special funds are expected," write the analysts led by Jens Eisenschmidt. They calculate an increase in the budget deficit by 0.2 percentage points, which could raise GDP by 0.15 percentage points.

The elections were triggered by the breakup of the current government coalition. According to polls, the CDU/ CSU union is leading with 33 percent. Morgan Stanley considers a coalition with the SPD as the most likely scenario, with both parties potentially securing 57 percent of the seats in the Bundestag together. Who Could Benefit?

Morgan Stanley sees particularly positive prospects for energy providers like E.ON SE (ETR:EONGn ) and Elia (EBR:ELI ). The plan to reduce network charges by 30 billion euros annually is the backdrop. "This could reduce electricity prices for industry by 26 percent and for private households by 19 percent," the report states.

The automotive industry is also on the radar. Experts have recently upgraded their rating to "In-Line," expecting a boost in demand due to lower energy costs and possible state subsidies. At the same time, structural challenges such as competition from Chinese manufacturers remain a challenge.

However, there are hurdles: "Changes to the debt brake require a two-thirds majority in both parliamentary chambers. This requires cross-party consensus," the analysts warn. Better Growth Prospects – But Also Risks

Morgan Stanley raised its growth forecast for Germany in 2025 from 0.5 to 0.8 percent. The expected investment boost and rising consumption are the main drivers. Particularly, companies from the MDAX could benefit from the announced state incentives.

Yet risks remain: U.S. tariffs and weakening sentiment in the industry could slow growth. Nonetheless, Morgan Stanley remains optimistic: A sentiment-driven rally in the German stock markets is conceivable – especially among mid-sized companies. Structural issues, however, must continue to be addressed.

Source: Investing.com