Germans go to the polls amid economic gloom and equity outflows

Some of the gloom has shown up in international fund flows tracked by EPFR (like CEIC, an ISI Markets company). Total outflows from German equities amounted to USD 7.3 billion last year – almost 2% of total assets under management (AUM) in Germany. As our chart shows, only the UK experienced larger outflows among major European economies.

Our third chart tracks the sustained pessimism towards German equities over the course of recent calendar years. The last year of steady inflows was 2021; both 2022 and 2023 started positively before ending the year with net outflows. And 2024 never experienced a net inflow at all.

Nonetheless, 2025 has started on a positive note. Accumulated net equity fund inflows had reached USD 835 million as of Feb. 11.

We can also see international portfolio managers' disinterest in Germany by examining allocations in different asset classes. German equities' share of funds that invest in Europe excluding the UK has declined from 25% in March 2021 to just 20% by the end of 2024.

Again, there are some signs of recent positivity. Germany's share within three selected asset classes (global ex-US, Europe and Europe ex-UK) increased by roughly a percentage point in the last months of 2024.

Meanwhile, as our final chart shows, German real GDP has been contracting on an annualized basis for a year and a half. The crucial manufacturing sector has been in decline since June 2023.

Amid the economic negativity and concerns about immigration, it's broadly expected that the far-right Alternative for Germany (AfD) will become the second-most-powerful party after the Christian Democrats. Chancellor Olaf Scholz's Social Democrats, whose coalition government collapsed in November, could fall to third place.

A negotiated end to the Russia-Ukraine war might bring gas prices down, improve German companies' fundamentals and bring back international portfolio flows. But the next government in Berlin will still face pressure to tackle red tape and improve the business environment to attract growing companies and innovation.

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