The conservative Christian Democrats (CDU) and the left-leaning Social Democrats (SPD) have agreed a coalition treaty in order to form a new government in Germany. The deal comes five weeks after Germany's national election, which saw the centre-right bloc, led by Friedrich Merz, come out on top.

Mr Merz is, therefore, set to become the new German Chancellor in May, replacing the outgoing Olaf Scholz. The 2025 German elections also marked a seismic shift in the country's politics as the far-right Alternative for Deutschland (AfD) made significant gains.

Talks between the CDU and SPD commenced shortly after the election. They centred around Germany's migration policy and how to revive the country's ailing economy.

According to reports, the CDU is pushing for business tax and welfare cuts while also adopting tougher policies on immigration. Meanwhile, the SPD pushed for tax hikes on those who earn the most.

Germany's economy has been set back by several challenges in recent years. These include the energy shock following the Russian invasion of Ukraine, a lack of investment, and bureaucracy preventing various construction and environmental projects.

US President Donald Trump's recent tariff hikes have shocked the global economy. He hit the European Union with a 20% retaliatory tariff.

As a result, Germany’s acting finance minister Jörg Kukie warned that Germany could be plunged into recession.

He said: “If things stay as they are, our exports to the U.S. will decline by about 15%.

“Our growth prospects would deteriorate, and the risk of recession would increase.”