What’s next for Germany?

Germany’s post-election landscape signals a shift toward a more pro-growth, reform-oriented government, marked by significant fiscal and defense spending commitments. This policy pivot, coupled with ongoing European Central Bank rate cuts, is broadening the performance of German equities beyond the narrow rally observed in the months preceding the election. Small and mid-cap stocks, in particular, appear well-positioned to benefit from this domestic recovery. While structural headwinds like demographic shifts and intensifying global competition remain, the new administration’s focus on reducing regulatory barriers and energy costs offers a positive cyclical outlook. Investors should look beyond the United States, as the potential for upside surprises in Europe, driven by these policy developments, provides a compelling case for diversifying regional allocations and maintaining exposure to German markets.