The Bulletin with UBS What’s next for Germany?
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Mar 10, 2025 Sam Adams, an economist for UBS in London, shares insights on Germany's shifting political landscape. He discusses the new Chancellor Friedrich Merz's ambitious defense and infrastructure spending plans and their potential boost to investor confidence. The conversation highlights the evolving pro-growth policies in German equity markets and explores how these changes may impact economic relations with trading partners. Adams also emphasizes the increased focus on small and mid-cap stocks as investment opportunities in this new environment.
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Germany's New Direction
- Germany's political direction is clearer after the election, with Chancellor-elect Friedrich Merz outlining plans for increased defense and infrastructure spending.
- This raises questions about investor confidence domestically and across the Eurozone.
Positive Market Reactions
- Market reactions to the German election have been positive, with a broadening performance in German equity.
- Smaller mid-cap stocks have started to outperform, likely due to the pro-growth, reform-oriented new government.
Risks to Fiscal Stability
- The German election results pose risks to fiscal stability due to potential conflicts with EU budgetary rules.
- Germany's debt level is comfortable, but increased spending could influence other European countries to follow suit, potentially straining their finances.