German Election Shock Raises Business Policy Risk

22 September 2026

Executive Summary

Germany’s weekend regional elections have increased uncertainty around the economic reform programme of Europe’s largest economy after Chancellor Friedrich Merz’s Christian Democratic Union suffered substantial losses in two states.

In Mecklenburg-Western Pomerania, the CDU failed to reach the 5% threshold required to enter the state parliament, while Alternative für Deutschland finished first.

In Berlin, Die Linke finished first, while the CDU fell to second place and AfD increased its share of the vote.

The elections do not themselves change Germany’s federal government or national economic policy.

Chancellor Merz has said he intends to remain in office and continue the federal government’s reform programme.

However, the results have intensified disagreement within the CDU-SPD governing coalition over reforms affecting areas including:

• Pensions.
• Taxation.
• Public spending.
• Employment.
• Social welfare.
• Energy costs.

That matters to business because Germany is attempting to implement substantial economic reforms while simultaneously deploying a €500 billion infrastructure programme and increasing defence investment.

The immediate business risk is therefore not a change of government but slower, altered or more difficult implementation of economic policy.

UK Impact

Germany remains one of the UK’s most important European trading partners and a central part of European manufacturing supply chains.

UK companies may therefore have exposure through:

• Automotive manufacturing.
• Engineering.
• Chemicals.
• Machinery.
• Energy.
• Financial services.
• Defence.
• Infrastructure.
• Consumer goods.

Businesses with German investment plans should avoid assuming that currently proposed reforms will necessarily be implemented exactly as originally announced.

Global Impact

Germany is Europe’s largest economy and one of the world’s major manufacturing exporters.

Its economic performance influences supply chains throughout Europe.

The government is attempting to address long-standing problems including:

• High energy costs.
• Industrial competitiveness.
• Labour shortages.
• Bureaucracy.
• Infrastructure investment.
• Pension costs.
• Weak productivity.

The election results increase political pressure surrounding how those reforms are implemented.

Energy policy is particularly relevant.

AfD has advocated restoring Russian energy links, while Germany’s existing federal policy has moved strongly away from Russian dependency.

The election results do not mean that German energy policy has changed.

But energy affordability is becoming increasingly politically significant as European gas and fuel prices remain elevated.

Our View

Businesses should distinguish between an election result and an immediate policy change.

The appropriate response is therefore monitoring rather than assuming a particular political outcome.

Companies should ask:

• Which German operations depend upon planned tax reforms?
• Are investment assumptions dependent upon government incentives?
• Are infrastructure projects dependent upon federal spending?
• Could implementation timetables change?
• Are energy-intensive suppliers financially resilient?
• Could energy support measures change?
• Are German labour costs incorporated into forecasts?
• Could pension or employment reforms affect workforce costs?
• Are suppliers dependent upon government infrastructure programmes?
• Could coalition disagreements delay legislation?
• Are major capital investments sufficiently flexible?
• Could political uncertainty affect foreign investment decisions?
• Are German customers delaying investment?
• Could industrial restructuring accelerate?
• Are contracts sufficiently flexible if costs change?
• Are alternative European suppliers available?

The central point is not which political party gained or lost votes.

For business, the relevant question is whether the result changes the speed, direction or certainty of economic policy.

At present, Germany’s federal government remains in place and its reform programme formally continues.

Businesses should therefore monitor implementation rather than assume either policy continuity or policy reversal.

Risk Indicator: ELEVATED – GERMANY, ECONOMIC POLICY & INVESTMENT

Disclaimer

The information contained within these Market Alerts is provided for general market awareness and informational purposes only. It does not constitute financial, legal, investment, regulatory or insurance advice. Whilst every effort has been made to ensure accuracy at the time of publication using multiple reputable and independently verified sources, geopolitical events, legislation, regulation and market conditions may change rapidly. Readers should obtain appropriate professional advice before acting upon any information contained herein.

Invictus Risk Solutions LLP – Helping organisations stay ahead of emerging risks through informed insight and independent analysis.