Investing.com -- The AfD's election victory in Saxony-Anhalt has raised questions over the German state's fiscal outlook and demographic pressures, though near-term market risks remain limited, UBS analysts said.
The AfD won 44% of the vote in the Saxony-Anhalt state election, leaving coalition formation uncertain. Possible outcomes range from an unconventional coalition to an attempt to govern without a formal coalition.
Fiscal policy is emerging as a key issue for investors. Estimates from the Halle Institute for Economic Research cited in the report suggest implementing AfD campaign commitments, including increased childcare and school meal spending, could leave an annual financing gap of about €2.2 billion.
That would amount to almost 3% of Saxony-Anhalt's GDP and could weaken the state's fiscal metrics if the proposals were implemented in full.
The AfD has also indicated it would reject participation in Germany's €100 billion federal infrastructure fund, potentially reducing access to investment resources as the state faces persistent demographic pressures.