Energy played an important role in German elections

Key takeaways:

– Widespread discontent with the state of the economy as well as migration significantly influenced voter sentiment in the recent German elections.

– For the first time since the early 2000s, the German economy, the world’s third-largest, contracted for two consecutive years (2023-2024) and growth prediction for 2025 is the slowest among large advanced economies (0.3% according to the IMF).

– Surging energy costs—partly fuelled by the war in Ukraine—have undermined the global competitiveness of the German economy, with the manufacturing sector bearing the largest impact. Combined with a slowdown in growth in key markets such as China – where a combination of structural economic problems but also a major shift in market dynamics (for instance, China was a major market for German cars but the expansion of EVs in the Chinese market has had a painful impact on German car exports) have caused significant pain in the German economy.

– The new German government is expected to maintain a steady course rather than introducing disruptive energy initiatives. We should expect continuity on many fronts when it comes to energy policy but not at the expense of the economy and competitiveness – two areas of focus of the incoming Chancellor and his party. We should also expect to see some previously agreed climate targets delayed (such as phasing out of coal beyond 2030), and others challenged (e.g. EU ban on the sale of internal combustion engines cars by 2035).