Deutsche Bank's morning market briefing noted that in the Saxony-Anhalt state election held on September 7, the Alternative for Germany (AfD) won approximately 44% of the vote, its highest vote share since it entered all levels of German elections, more than double its support in 2021. Chancellor Merz's Christian Democratic Union (CDU) only secured about 17%, its weakest performance in the state. The AfD is still far from securing a majority in parliament, and mainstream German parties continue to maintain a political "firewall" against cooperation. However, voter dissatisfaction with economic stagnation, energy costs, and immigration policies is rapidly reshaping the local political landscape and will further increase the pressure on the Merz government.
Deutsche Bank believes this election highlights the continued rise in support for anti-establishment and populist parties in Europe, even as local job markets remain robust and inflation is relatively moderate, without a corresponding improvement in political sentiment. For the market, German political fragmentation may increase uncertainty regarding fiscal arrangements, energy policy, and structural reforms. It remains to be seen whether other state elections will replicate this trend, and whether mainstream parties will adjust their economic and immigration policies.
