Investing.com - Germans are set to head to the polls later this month, in what has been described as one of the most consequential elections in the European powerhouse's recent history.
The vote comes at a precarious time for Germany's economy. Growth in the country is expected to contract for a third consecutive year in 2025, according to media reports citing the BDI industry association.
Despite expectations that the Eurozone currency area will expand by 1.1% this year and the global economy by 3.2%, Germany -- Europe's largest economy -- is seen shrinking by 0.1%, BDI said.
Should the 2025 contraction come to pass, it would be the first time since Germany was reunified that it has shrunk for three straight years.
"Growth in industry in particular has suffered a structural break," BDI President Peter Leibinger said, according to Reuters.
A jump in competition from international rivals, elevated energy costs, high interest rates and broad economic uncertainty have dented activity in Germany, Europe's largest economy.
However, Leibinger argued that the crisis has largely been made in Germany, with governments unable to address structural weakness in the national economy.
Worries over the state of Germany's economy -- and a spat over how to revive growth -- contributed to the fall of the country's governing coalition overseen by Social Democratic Chancellor Olaf Scholz. Following a vote of no confidence in Scholz in December that led to the dissolution of Germany's national parliament, the Bundestag, the country will hold a snap national election on February 23.
Germany's conservative opposition party is on track to win the vote by a sizeable margin, polls have indicated, with Friedrich Merz tipped to become the next chancellor of Germany. However, analysts at Morgan Stanley (NYSE:MS) have flagged that uncertainties around the outcome are high, pointing to a "large share" of undecided voters.
Still, they argued that a potential government coalition between the center-right CDU/CSU party and center-left SPD is the "most likely outcome." In that event, lawmakers could pursue a range of policies, including a possible reduction in the corporate tax rate over four years, the analysts said.
Such a move is estimated to potentially boost earnings in Germany's benchmark DAX index by 72 basis points in 2026, 1.1% in 2027, 1.5% in 2028 and 1.9% in the final year. In individual stocks, "Scout24, Porsche AG, Commerzbank (ETR:CBKG), Deutsche Bank (ETR:DBKGn), MTU Aero Engines (OTC:MTUAY), and BMW (ETR:BMWG)" were cited as most positively impacted by the corporate tax cut within Morgan Stanley's coverage.