Important Links

How the German federal election result could affect you

22 August 2017FXPoliticsEconomics

How the German federal election result could affect you

  • The German federal election takes place on 24 September 2017
  • Investors can expect a broad effect on global financial markets
  • All statistics and predictions are based on Citi analyst research, current as of 4th August 2017*

24 September 2017 will see the citizens of Germany head to the polls to decide who will lead the country as Chancellor for the next four years. As Europe's largest economy, the outcome of this election will naturally affect the future performance of financial markets far beyond German borders. Here, we summarise events so far in the run up to the German federal election and how the results could affect you.

Who's running in the German federal election?

There are two main candidates for German Chancellor: current leader Angela Merkel and newcomer Martin Schulz. Merkel heads up the centre-right leaning Christian Democratic Union (CDU), which is in the same parliamentary group as its sister party, the Christian Social Union. The CDU was founded post-World War II and has been in power for the majority of the years since.

Citi analysts expect Angela Merkel to remain chancellor for another four years, with Chancellor Merkel's CDU and its Bavarian sister party CSU currently polling around 39%*. That said, this year is the first time that Merkel's position has been realistically challenged in its 11-year duration. In March, the Social Democratic Party (SDP) – the CDU's largest opposition – unanimously elected former president of the European parliament Martin Schulz as their leader. Dubbed "Sankt Martin" – which needs little translation – Schulz is a similar figure to Jeremy Corbyn in the German political landscape, if somewhat closer to the centre than the Englishman in terms of policies.

Indeed, the so-called "Schulz effect" saw the SDP draw up level in popularity with the CDU in early 2017, prompting pundits to anticipate the tightest race in years. More recent polls have turned back in Merkel's favour however, with the SDP currently polling around 24%*. It seems that voters are now seeking stability in this turbulent period in world politics, and with a month to go until Election Day, the SDP appear to face an uphill struggle when it comes to knocking the CDU from power.

No significant radical party has so far polled above 10% either, so a Merkel loss is looking very unlikely at this point.*

How will the German federal election affect the UK economy?

The UK's financial relationship with Germany has long flourished as one of the strongest in the Eurozone, and so political uncertainty as a result of the federal election could have a widespread impact. Germany is the UK's second-largest export destination, while the UK is in Germany's top three, a relationship that has run smoothly through EU trade policy.

Of course, while Britain's exit from the EU will have a strong impact on this relationship, the new chancellor will also play a large role in deciding future trade agreements.

How could a new Chancellor affect UK & European equities?

In 2013, Merkel overtook Margaret Thatcher's record to become Europe's longest ever serving female leader, and she has campaigned for Germany to play a major role in the EU for over a decade. A CDU victory in the September election would likely see her continue to champion the vitality of the unified member states. That could mean that Britain will take a hit in terms of trade deals, with UK equities floundering in the shadow of European prosperity.

However, there remains the chance that the "Schulz effect" could take a surprise hold on the country, and the SDP leader could find himself matching Merkel at the polls. Should this happen, he will likely need to form a coalition with one of the fringe governments to get over the line. Such political uncertainty could lead to a weaker Eurozone. A weak Eurozone could lead to problems with all markets, including the UK.

A change in Chancellor would not only jeopardise the current, strong Eurozone, but also throw a curveball into the strained relationship between Germany and the US, thus affecting global markets as a whole. As in the UK election, financial analysts will await exit polls with interest, despite the expectation of a Merkel win. Whatever the result, Sunday 24 September will undoubtedly play a pivotal role in the future of world finance.

How could a new Chancellor affect foreign exchange?

Recent reduced political risks and good economic performance means the Eurozone is in a strong position currently. A Merkel loss could rattle this and therefore reduce the strength of the euro as a currency.

"An unexpected surprise [in the election outcome] could lower the sentiment in Eurozone recovery and therefore put pressure the currency", says Citi Portfolio Counsellor, Deepak Kumar.

Regarding the effect of the German federal election on the pound, Deepak says, "Though the GBP is more influenced by domestic political events and the Brexit process, uncertainty in Eurozone [as a result of a Merkel loss] is likely to impact the pound as well."

If you'd like to find out how the German federal election could affect your portfolio or foreign exchange, your Relationship Manager will be happy to help.

Our recent research

A Redefinition of Value Investing

Diversification into cyclical markets, particularly value stocks with still subdued valuations, remains preferred. Citi analysts consider four strategies to identify where "value" may be for certain companies.

Find out more


Assessing the Pullback in the Technology Sector

The technology sector is seeing some pressure after a rally that has surpassed expectations. COVID-19 cyclicals were more resilient, consistent with Citi analysts’ preference of rotating from growth to value stocks amid a cyclical recovery. Looking ahead, Citi analysts believe this is more likely a correction rather than the start of a broader downturn, as the cyclical recovery remains intact. Nevertheless, further volatility is expected due to the upcoming US Presidential election and ongoing pandemic. With US equity valuations at a historic high relative to others, investors could also look to diversify into non-US markets.

Find out more


Going Cyclical in Asia

Investors in Asia have flocked to COVID-19 defensive or growth sectors like technology this year, while COVID-19 cyclical or value sectors have lagged significantly. Citi analysts expect this relative performance to reverse, at least partially, as re-opening takes place.

Find out more

EquitiesAsia PacEmerging Markets

Take the first steps to your wealth management planning with Citi

Speak to a Relationship Manager
0207 500 1992

Already with Citi? Contact your relationship manager or view product availability on Citi Online

Why choose Citi

A relationship - not just a bank account

A dedicated Relationship Manager giving you access to our internal team of product experts and all our benefits

Access to exclusive Citi products

A range of current and investment products available both on shore and offshore, in the currency of your choice
Multi-currency accounts
Investment products

Global services for a global lifestyle

Our team is here to support you getting started in UK or with International travel and relocation
Moving to and from the UK
Travelling overseas

Offshore investments

We offer a diverse range of banking and investment services, including for those who want access to offshore investments

Find out more

Just moved to the UK?

We can save you time money and hassle. If you are a foreign national in the UK, Citi's International Banking Service can help you manage your money, home and away.

Find out more

Investment products are not insured by any governmental agencies, are not bank deposits, and are neither obligations of, nor guaranteed by, Citigroup, or any of its affiliates, unless otherwise stated. Investment products are subject to investment risks, including possible loss of some or all of the principal amount invested. Past performance is not indicative of future results, investments can go down as well as up.

“Citi analysts” refers to investment professionals within Citi Research (“CR”), Citi Global Markets Inc. (“CGMI”) and voting members of the Citi Global Investment Committee. Citibank N.A. and its affiliates / subsidiaries provide no independent research or analysis in the substance or preparation of this document. The information on this page has been obtained from reports issued by CGMI. Such information is based on sources CGMI believes to be reliable. CGMI, however, does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute CGMI’s judgment as of the date of this page and are subject to change without notice. This page is for general information purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or currency. No part of this page may be reproduced in any manner without the written consent of Citibank N.A. Information on this page has been prepared without taking account of the objectives, financial situation, or needs of any particular investor. Any person considering an investment should consider the appropriateness of the investment having regard to their objectives, financial situation, or needs, and should seek independent advice on the suitability or otherwise of a particular investment. Citi Research (CR) is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this information. Investors should consider this information as only a single factor in making their investment decision.

Opinions expressed herein may differ from the opinions expressed by other businesses or affiliates of Citigroup, Inc., and are not intended to be a forecast of future events, a guarantee of future results or investment advice, and are subject to change based on market and other conditions.