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LGT Navigator: SPD with Scholz in Pole Position – Germany faces difficult coalition talks

September 27, 2021

The German federal elections have been decided and the Social Democrats have won with a razor-thin majority: According to preliminary official final results, the SPD came in at 25.7% followed by the CDU/CSU, which, however, plummeted to a record low. Germany now faces a difficult task in forming a government or coalition.

SPD with Scholz in Pole Position – Germany faces difficult coalition talks

The SPD and its candidate for chancellor, Olaf Scholz, narrowly emerged from the federal elections as the strongest party. According to the preliminary final results, the Social Democrats improved to 25.7% (+5.2%). After 16 years of government by Chancellor Angela Merkel with Chancellor candidate Armin Laschet, the CDU/CSU plummeted to a record low of 24.1% (-8.8%). The Greens become the third strongest force, but despite their best result of 14.8% (+5.9%) they remained below expectations. The FDP improves to 11.5% (+0.8%), while the AfD, previously in third place, still comes in at 10.3% (-2.3%). The Left Party falls back to 4.9% (-4.3%) but can defend three of its last five direct mandates and may therefore enter the Bundestag despite missing the 5% hurdle.

According to the latest projections, the distribution of seats in the Bundestag changes as follows: SPD 205 to 209 (2017: 153), CDU/CSU 194 to 196 (2017: 246), Greens 116 to 118 (67), FDP 91 to 93 (80), AfD 84 (94), Left 39 to 40 (69).

As expected, Germany now faces difficult coalition negotiations. Armin Laschet has already announced his claim to the chancellorship as well. From today's perspective, the so-called “traffic light coalition” seems to have the best chances. However, a “Jamaica coalition” or even a relaunch of the “grand coalition” would also be possible.

On financial markets, the not really surprising result of the German elections should be received calmly and not lead to any strong reactions. Towards the end of last week, stock market sentiment clouded over again somewhat, and events were characterized by investor restraint. On the one hand, the uncertainty regarding the Chinese real estate group Evergrande remains palpable and, on the other hand, the financial markets seem to be bracing themselves for the US Federal Reserve's announcement that it will soon be curbing its expansionary course. In addition, European investors probably did not want to venture too far out of the window in the run-up to the Bundestag elections in Germany.

The Dow Jones Industrial closed +0.1% higher at 34,798.00 points on Friday, giving a gain of +0.62% for the week. The S&P 500 closed the week up +0.15% to 4,455.48 points. In Asia, the stock indices started the new week cautiously. On the one hand, the rise in oil prices to a three-year high fueled inflation fears and on the other hand, the ongoing uncertainty surrounding the Chinese real estate group “Evergrande” causes continued nervousness.

Business climate in Germany deteriorates for third month in a row according to Ifo survey

The mood of German entrepreneurs deteriorated once again in September. This was revealed by the latest survey results of the Munich-based Ifo economic research institute. Germany's most respected economic barometer fell from 99.6 to 98.8 points (analysts' consensus 99.0), marking the third consecutive month of decline. The background to the more pessimistic assessment was primarily the continuing problems with supply chains and in particular the procurement of raw materials and intermediate products.

ECB President Lagarde reaffirms her assessment on inflation

Christine Lagarde, Europe's top monetary watchdog, stressed during an interview with the TV channel CNBC that she continues to believe the current sharp increase in inflationary pressure to be a temporary phenomenon. The rise in inflation, she said, was mainly due to temporary causes - largely the base effect in energy prices caused by the corona crisis. The same applies to the now noticeable effects of VAT cuts in some countries, especially Germany, she said. The ECB president also sees no signs of a wage-price spiral at present.

Evergrande problems limited to China at the moment, according to ECB chief Lagarde

The president of the European Central Bank also commented on the concerns surrounding the Chinese real estate giant “Evergrande,” which has run into payment difficulties. "At the moment, we see the problem concentrated on China, and for Europe I can say that it is only directly affected to a limited extent. However, the ECB will continue to closely monitor further developments," Christine Lagarde said.


Economic Indicators September 27

MEZ Country Indicator Last period
10:00 EZ M3 money supply growth (August, y/y) +7.6%
14:30 US Durable Goods Orders (August, m/m) -0.1%


Earnings Calender September 28

Country Company Period
GE Hella Q1


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