German election primer: All you need to know ahead of the 2025 federal election

Investing.com -- Germany’s 2025 federal election is set for February 23, with the conservative CDU/CSU leading the polls at 31%, followed by the far-right AfD at 21%, the Social Democrats (SPD) at 15%, and the Greens at 13%, according to Deutsche Bank (ETR:DBKGn). 

In a note previewing the election, Deutsche Bank analysts said attention will be on whether smaller parties such as the FDP, BSW, and Left make it into parliament.

They believe coalition negotiations could take several weeks, requiring difficult compromises. 

According to Deutsche Bank, the most likely outcome is a two-party “grand coalition”, with the CDU/CSU forming a government with either the SPD or the Greens. This is the bank’s base case. 

They state that a CDU/CSU-SPD coalition appears more probable as it would offer a more stable majority.

A three-party centrist coalition—such as a "Kenya" (CDU/CSU-SPD-Greens) or "Germany" (CDU/CSU-SPD-FDP) coalition—is also possible.

However, Deutsche Bank states: “On the one hand, a three-party coalition could prove to be rather fractious and result in fraught policy compromises. On the other hand, a “Kenya” coalition might increase the chance of a meaningful shift in fiscal policy if centrist parties kept the two-thirds majority.”

Deutsche Bank highlights two main risks:

1. Blocking minority of fringe parties (AfD & BSW) – The bank states that this could stall constitutional changes for defense and infrastructure funding or force concessions to these parties.

2. AfD in government – While Deutsche Bank notes an “extremely high bar” for this scenario, all major parties have ruled it out in advance.

Fiscal policy is expected to shift toward higher spending, particularly for defense, but the short-term economic boost may be limited. 

Deutsche Bank says a CDU/CSU-led government may pursue corporate tax cuts and energy price reductions, but major pension reform is unlikely.

The analysts forecast 0.5% GDP growth in 2025, with the potential for stronger expansion in 2026 if debt-financed investment increases. Without such reforms, Germany faces structural stagnation.