Market news
02.09.2024, 14:39

EUR: Political weakness at the heart of Europe – MUFG

As is happening in France with the extremes on the left and right of the political spectrum taking a larger proportion of votes in the parliamentary elections, this weekend saw a similar pattern in two regional elections in Germany yesterday. AfD is on course to win 32.8% in the state of Thuringia and marks the first win for a far-right party since World War II. The CDU/CSU was a second with 23.6% of the vote. It was the other way around in Saxony with the AfD falling short with 30.6% of the vote while the CDU/CSU won a slightly larger share with 31.9%. The SPD did appallingly bad winning just 6.1% in Thuringia, the worst result in postwar Germany while both the Greens and the FDP both fell below the 5% threshold required in order to be represented in the state parliament, MUFG FX analysts note.

A political gridlock comes to Germany

“The evidence of disaffection was highlighted by the surge in popularity on the left as well with a new far-left party BSW winning 15.8% of the vote in Thuringia and 11.8% in Saxony. Given the performance of the two extreme parties it is clear that Germany is heading slowly toward the very same political outcome as in France – political gridlock. AfD will not be in a position to govern in Thuringia given all other parties have stated they would not enter a coalition with AfD which mean the CDU/CSU would be required to consider governing with other parties including the far-left party BSW. BSW are more supportive of Russia and are calling for a change in policy on Ukraine.” 

“The next general election is scheduled for autumn 2025 and based on these results it seems difficult to see a strong government emerging. The political backdrop in the euro-zone has never been as bad since the single currency emerged. Weak GDP growth in Germany for a sustained period is at the heart of voter anger. Five of the last ten quarters for GDP growth has seen a contraction. Incredibly, Germany’s economy is a mere 0.2% larger than in Q4 2019 ahead of the covid pandemic. In the US, real GDP is 9.4% larger over the same period.”

“We will be releasing our monthly Foreign Exchange Outlook this afternoon and we will be showing a weaker US dollar forecast profile but the mixed global economic backdrop – commodity prices are down 10% since May, the elevated geopolitical risks and the complete political gridlock at the heart of the euro-zone all point to reasons to remain cautious over the extent to which the dollar will weaken going forward.”

 

 

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