Explainer: What the upcoming election means for corporate Germany

MTU Aero Engines AG

18/02/2025 10:53

By Christoph Steitz
       FRANKFURT, Feb 18 (Reuters) - Germany goes to the polls
on Sunday amid prolonged weakness in Europe's top economy and as
companies warn of a rapidly worsening environment, putting the
country's industrial future at risk.
    Following are some of the key issues for companies, how the
parties are planning to tackle them, and which stocks could
benefit:
     
    WHAT ARE THE BIGGEST CHALLENGES FOR COMPANIES?
    Bureaucracy and costs.
    Companies have heavily criticised the amount of red tape,
both on the domestic and EU level, calling for far-reaching
simplification, particularly in the field of energy.
A recent survey by the German Chamber of Commerce and Industry
showed 60% of firms citing economic conditions, including
bureaucracy and high labour and energy costs, as the biggest
risks to business, an all-time high.
Business leaders have also warned of deindustrialisation as
companies opt to invest elsewhere due to more stable conditions.
    Germany lost a combined 320 billion euros ($335 billion) in
net investments between 2021-2023, the IW economic institute has
said, more than tripling from the 2018-2020 period.
     
    WHAT ARE THE PARTIES PLANNING TO DO?
There are pledges by the big parties, most notably the Christian
Democrats (CDU/CSU), the Social Democrats (SPD), the Greens and
the far-right Alternative for Germany (AfD) to cut red tape and
bring down costs.
    For companies, a proposal by the CDU/CSU to cut the
corporate tax rate to 25% from more than 30% now, as well as
plans to abolish a national supply chain law, could have the
most tangible impact.
The CDU/CSU has signalled some openness to a moderate reform of
the debt brake, an aspect closely watched by markets as it could
unleash public funding for its ailing economy.
    All parties agree that electricity costs for industry, which
are more than twice the levels in the United States and China,
have to come down, but they differ in how they plan to fix this.
     
    WHICH STOCKS COULD BE MOST IMPACTED?
    Small and medium-sized companies, which form the backbone of
Germany's economy, are expected to benefit more from any
pro-business initiatives, as they make most of their sales at
home - unlike German blue-chips.
    Morgan Stanley expects that corporate tax cuts could boost
the earnings of DAX  .GDAXI  and MDAX  .MDAXI  companies by an
average 1.1% and 1.6% a year, respectively, over the next three
years.
    The most exposed stocks are Scout24  G24n.DE , Porsche AG
 P911_p.DE , Commerzbank  CBKG.DE , Deutsche Bank  DBKGn.DE ,
MTU Aero  MTXGn.DE , BMW  BMWG.DE , Volkswagen  VOWG_p.DE ,
Rheinmetall  RHMG.DE  and Lufthansa  LHAG.DE , the brokerage
writes.
    Auto stocks, including Mercedes-Benz  MBGn.DE , could
receive a boost from efforts to subsidise electric vehicles by
the SPD and Greens, as well as CDU/CSU plans to reverse a ban on
combustion engines, Deutsche Bank says.
    Goldman Sachs also expects defence companies to benefit from
higher spending expected under CDU/CSU leadership. Apart from
Rheinmetall and MTU, German-listed defence stocks include
Hensoldt  HAGG.DE , Renk  R3NK.DE , Airbus  AIRG.DE  and
Thyssenkrupp  TKAG.DE .
    ($1 = 0.9547 euros)

(Reporting by Christoph Steitz; Additional reporting by Danilo
Masoni; editing by Matthias Williams)
((mailto:christoph.steitz@thomsonreuters.com; +49 30 220 133
647;))