Barclays_German_Stimulus_Playing_the_long_game

Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companiescovered in its research reports. As a result, investors should be aware that the firm may have aconflict of interest that could affect the objectivity of this report. Investors should consider thisreport as only a single factor in making their investment decision.This research report has been prepared in whole or in part by equity research analysts basedoutside the US who are not registered/qualified as research analysts with FINRA.(ii) This author is a member of the Fixed Income, Currencies and Commodities Researchdepartment and is not an equity or debt research analyst.FOR ANALYST CERTIFICATION(S) PLEASE SEE PAGE 43.FOR IMPORTANT EQUITY RESEARCH DISCLOSURES, PLEASE SEE PAGE 43.FOR IMPORTANT FIXED INCOME RESEARCH DISCLOSURES, PLEASE SEE PAGE 50.German StimulusPlaying the long gamePost an H2 tariffs hit, we expect German stimulus and ratecuts to lift EA growth to above trend by YE26. This is mostbullish for German equities (MDAX, BCERGERE basket), butearnings & valuations could go higher across the region too(SXXP 620 '26 target). We present sector &stock opportunities. ListenMulti-year fiscal expansion in Germany. Since 2022, Germany’s real GDP growth has laggedbehind that of other major European economies. Like its European peers, Germany shouldbenefit from reduced policy uncertainty once a new trade regime is agreed, as well as from thetransmission of monetary easing. Unlike the French, Italian, and Spanish governments – whichlack the fiscal space to ease policy – Germany is set to launch a large, multi-year, deficit-financed fiscal expansion that will boost growth beginning next year, with Bund yields unlikelyto move up materially. So, starting in mid-2026, we expect Germany to outperform France, Italy,and Spain, supported by a period of solid, above-trend growth.Medium-term investment thesis for EU equities is starting to improve. EU equities areahead of the pack ytd, as investors look to diversify away from the US, domestic sectors likebanks have strongly outperformed, the ECB has cut rates, and German stimulus has liftedgrowth expectations. Although tactical risk-reward may favour the US into H2 amid renewedtariffs and geopolitical uncertainty, we see a case for further re-rating of EU equities over themedium to long term to drive more inflows to the region. As EU GDP growth appears set toreturn to trend by YE'26, we believe earnings could grow double-digit in 2026-27. EU equitiesremain structurally cheap and under-owned, in our view. We set a new target of 620 for SXXP forthe end of 2026.German equities to benefit the most. German competitiveness has been in decline since 2017and energy security remains an issue, with industrial output much weaker than pre-Ukraine war.However, there are early signs of improvement, as the investment cycle starts to turn around.Cross Asset Research18 June 2025SIGNATUREEuropean Equity StrategyEmmanuel Cau, CFA+44