Is Germany still the safe bet in Europe?
The German public will shortly go to the ballot box, in an important election for Germany and Europe. As well as immigration and defense, the economy is increasingly a major election theme. After two years of contractions, the economy is projected to grow again this year, but by just 0.5%. In this Euro Rates Watch we look from an investors point of view to the German elections.
Structural factors, such as high energy prices and the more general loss of competitiveness continue to weigh on the outlook
While cyclical headwinds are easing as rate cuts and rising purchasing power stimulate growth
A game changing rise in government spending seems unlikely as far reaching debt-brake reform would be difficult
Investors' concerns about Germany's long-term economic growth have intensified
This has led to an increase in German term premia over recent months, resulting also in a negative swap spread in the 10-year area
However, Germany's strong fiscal profile, AAA rating, and highly liquid debt market should continue to benefit Bunds, especially during periods of market stress and volatility