As predicted by many, Germany’s conservative Christian Democratic Union (CDU) has won the largest share of the vote in the country’s recent General Election, obtaining 28.5% of ballots cast. Alternative for Deutschland (AfD) delivered the stand out performance of the night, becoming the second largest party (20.8% of the vote) demoting Olaf Scholz’s SPD to third (16.4%).
Until a new coalition is formed to lead the country (probably comprising the CDU and SPD), it is difficult to judge the full impact of the change of government on the logistics and supply chain sector. The CDU has vowed to cut bureaucracy, reduce energy costs (through lower taxation), cut personal and corporate taxes and encourage investment. This would undoubtedly stimulate the derived demand for transport and logistics services. The CDU’s ‘Agenda 2030’ targets economic growth of 2% a year, considerably higher than the government’s own forecasts of 0.3% in 2025. However, there are fears that the CDU’s expectations are over optimistic, and what’s more, any gains achieved by these reforms could be wiped out by the tariffs planned by Donald Trump on European imports.
Speaking before the election the leader of the CDU and new Chancellor, Friedrich Merz, has said that he wants to have positive relations with President Trump, including renewed efforts to bring about a free trade deal between the EU and US. This ambition now looks remote, given Trump’s rhetoric and comments about European partners both in terms of trade and the war in Ukraine. Germany is a prime target for the new administration in Washington due to its large trade surplus and its low level of spending on defence, a critical issue in Trump’s agenda. One solution would be reforming the so-called ‘debt brake’ or ‘Schuldenbremse’ (a legal cap on Federal spending) which would allow more expenditure on defence. However, given the strength of the AfD’s performance – a party which is strongly opposed to more military support for Ukraine – this will now be difficult to get through parliament.
The new Chancellor will not only have to deal with President Trump but also navigate a tricky relationship with China. German manufacturers are majorly dependent on the weak Chinese economy and very vulnerable to any shifts in political sentiment. EU tariffs on Chinese imports of electric vehicles will prove a thorny issue in the future development of German-China trade and affect the new government’s ability to attract foreign investment.
Regulation has been a very hot topic over the campaign, especially given Elon Musk’s well-documented assault on red tape and over-staffing in the USA. One of the most important pieces of legislation that the business-friendly CDU has promised to abolish is the Germany Supply Chain Law, ‘Lieferkettensorgfaltspflichtengesetz’ or LkSG. The LkSG is a piece of human rights and environmental due diligence legislation which was introduced with the intention of compelling German businesses to address workers’ rights violations within their global supply chains. As Roedl & Partner, an advisory firm, puts it, ‘Companies must prove that they have done everything in their power to prevent human rights-related risks along the supply chain.’ However, the law has proved to be unpopular in many parts of German business and in June 2024 the CDU parliamentary group, then in opposition, attempted unsuccessfully to repeal the legislation. Organisations such as the VDMA (German Engineering Federation) argued that the law not only affected large companies, which were the focus of the regulations, but also their smaller suppliers which had no option but to comply with their clients’ legal obligations.
Given that the CDU is now in power, a repeal is likely although this may be subject to coalition negotiations. However, this may only be a temporary victory for those who want to reduce the burden of ‘red tape’. The EU Council voted to adopt the Corporate Sustainability Due Diligence Directive (CS3D) on March 15, 2024 and the EU’s members have two years from this date in which to transpose the law into national legislation. Even if the LkSG is removed from the statute books it is likely to be replaced.
The German economy is facing many structural problems which will take time to fix and the new government’s weakness will compromise its ability to implement reforms. However, if it is able to stimulate economic demand through a combination of deregulation, tax cuts, cost reductions and investment, the German domestic transport and logistics industry will be the first to benefit. The reconstruction of Ukraine, should a peace deal be agreed, and possible increased spending on defence by the German government, would also provide tailwinds. The prospects for international shipping and air cargo are more difficult to judge. The immediate future of these sectors will depend on whether a full scale trade war is initiated by President Trump and the response of the European Commission. Relations with China will also be crucial to the future development of the industry.
Author: Thomas Cullen
Source: Ti Insight
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