How Will the 2025 German Federal Election Impact the DAX and Major German Stocks?

2025 German Election Key Takeaways

• With a polarized electorate and significant support for both the Union and the AfD, the 2025 German Federal Election is poised to create substantial market uncertainty
• Different coalition scenarios could have dramatically different impacts on key German stocks like Volkswagen, Siemens, SAP, and Deutsche Bank.
• Upcoming election uncertainty or not, Germany’s DAX has been on an impressive bullish run – see the key levels to watch next!

The upcoming German federal election, scheduled for February 23, 2025, is drawing intense scrutiny from investors and policymakers alike. As coalition talks and voter sentiment heat up, the potential shifts in government could trigger significant moves in the financial markets—especially among stalwarts in Germany’s DAX index like SAP, Volkswagen, Siemens, and Deutsche Bank.

Germany’s Current Political Landscape

Chancellor Olaf Scholz announced the dismissal of Finance Minister Christian Lindner in November 2024, prompting Lindner’s FDP party to leave the “traffic light” coalition government. Scholz then called (and subsequently lost) a confidence vote in December, leading to the dissolution of the Bundestag and pulling forward the election from September 2025 to February.

Latest Polling Averages:

• Union (CDU/CSU) - Led by Friedrich Merz: 28%
• AfD - Led by Alice Weidel: 22%
• SPD - Led by Olaf Scholz: 15%
• Greens (Grüne) - Led by Robert Habeck: 12%
• Other Parties: The remaining percentage is divided among smaller parties. Only parties that receive at least 5% of the votes enter the Bundestag and may play a decisive role in coalition negotiations.

Source: Wikipedia

Emerging Political Trends & Shifts:

• Recent polls reflect a volatile electorate. The sizable gap between the Union and the AfD, combined with the modest support for the SPD and Greens, suggests a divided mandate that could lead to prolonged coalition talks and policy compromises—or, conversely, sharper ideological pivots.
• The strong showing by the AfD at 22% signals a significant rightward shift among a sizeable segment of voters, potentially forcing traditional parties to re-evaluate their stances on issues such as immigration, EU integration, and industrial policy.
• The Union remains the largest bloc, but the relatively low support for the SPD and Greens suggests that any progressive coalition would require unconventional alliances or significant post-election negotiations with smaller parties.

German Election Coalition Dynamics:

• Traditional Coalition Options: The Union may seek partners from the center-right (e.g., the FDP or other conservative groups) to secure a stable majority without the ideological complications of including the AfD.
• AfD Influence: Although mainstream parties have historically shunned formal coalition talks with the AfD, their strong electoral performance may indirectly shape policy debates, influencing the platforms of potential governing coalitions, even if it isn’t ultimately included.
• Progressive Alternatives: A coalition led by or including the SPD/Greens remains a possibility if fragmentation among center-right parties occurs; however, the lower polling numbers for these parties make this outcome less likely.

Scenario Analysis: How Different Election Outcomes Could Impact German Stocks

Scenario 1: A Union-Led Coalition

Policy Outlook & Impact:
A Union-led government is expected to pursue a center-right, pro-business agenda characterized by stable fiscal policies, lower corporate taxes, and a streamlined regulatory environment. This approach is designed to promote confidence among investors by reducing uncertainty and encouraging capital investment.

Sector & Key Stock Impact:

• Automotive & Industrials:
• Potential Winners: Companies like Volkswagen and Siemens are poised to benefit from predictable policies and continued infrastructure spending, which can drive both traditional and green innovation.
• Tech Sector:
• Potential Winner: SAP is likely to thrive under a regime that supports digital transformation and steady technology investment.
• Financial Sector:
• Potential Winner: Deutsche Bank could experience stability through consistent monetary policies, even as moderate regulatory oversight remains in place.

Scenario 2: An AfD-Influenced Landscape

Policy Outlook & Impact:

Although the AfD is unlikely to enter a formal coalition, its strong polling performance could push mainstream parties toward more nationalist and protectionist policies. This shift might include tougher immigration controls, a rollback of certain EU integrations, and a focus on domestic over international markets.

Sector & Key Stock Impact:

• Automotive & Industrials:
• Potential Losers: Volkswagen and Siemens could face headwinds if nationalist policies lead to trade disruptions, increased tariffs, or bureaucratic obstacles that affect export-oriented operations.
• Tech Sector:
• Potential Loser: SAP may encounter uncertainty amid potential calls for digital sovereignty and tighter control over data flows, complicating multinational operations.
• Financial Sector:
• Potential Loser: Deutsche Bank might see increased volatility and tighter oversight as market liquidity and cross-border operations become more unpredictable.

Scenario 3: A Progressive Coalition (SPD/Greens-Led)

Policy Outlook & Impact:

A coalition led by the SPD and Greens would likely implement an aggressive agenda focused on social spending, environmental protection, and rapid digital transformation. This approach could involve higher corporate taxes to finance extensive public investments, alongside stringent regulatory measures aimed at achieving ambitious sustainability goals.

Sector & Key Stock Impact:

• Automotive & Industrials:
• Potential Mixed Impact: Volkswagen may face transitional challenges as stricter emissions standards accelerate its shift toward electric vehicles, while Siemens could benefit from significant government investments in green technology and infrastructure, despite potential short-term adjustment costs.
• Tech Sector:
• Potential Winner: SAP is well positioned to leverage increased government spending on digital initiatives, although it must navigate a landscape of tighter digital and data regulations.
• Financial Sector:
• Potential Loser: Deutsche Bank and similar institutions might endure heightened regulatory scrutiny and increased compliance costs as fiscal policies shift to support expansive social programs.

With a polarized electorate and significant support for both the Union and the AfD, the 2025 German Federal Election is poised to create substantial market uncertainty. To help navigate the uncertainty, readers should stay informed about the latest polling data, coalition negotiations, and policy announcements as the election approaches. By having a “game plan” for different scenarios and preparing in advance to manage risks, you can maximize your chances of trading the German election successfully.

German Stock Market Technical Analysis – DAX Daily Chart

Source: StoneX, TradingView

Upcoming election uncertainty or not, Germany’s DAX has been on an impressive bullish run. Since breaking out above 20,500 four weeks ago, the index has hit a record high on 18 of the last 23 days to approach 22K as of writing.

As the 14-day RSI indicator shows, the bullish momentum is starting to fade slightly, suggesting that we may see some profit-taking ahead of the ballot boxes opening, but the underlying strength of the trend into the election suggests that traders will be keen to buy the index on any near-term dips toward the rising bullish trend line and 50-day EMA around 20,800 (if it even pulls back that far).

Only a break below those confluent support levels would flip the bias back in favor of the bears.

Be sure to stay tuned for more our analysis and any relevant updates in the final stretch before, and initial reaction after, this month’s highly-anticipated election results!

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX