LIVE MARKETS-German fiscal easing scenarios: modest lift or boost?

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

GERMAN FISCAL EASING SCENARIOS: MODEST LIFT OR BOOST?

A post-election boost to German fiscal spending, namely though the reform of the debt-brake rule, is top of mind of investors buying into European stocks these days.

UBS has three potential scenarios which it has been discussing with clients ahead of the vote on February 23.

The Swiss bank's base-case to which it gives a 60% probability is of a modest cyclical lift.

Under this option, a debt brake reform would lead to a 0.7% of GDP in extra spending, driving more funds on defence and just a modest extra support for households and corporates.

"Growth could rise back to its potential level of 0.8% by 2026, but structural headwinds would remain," writes UBS economist Felix Huefner.

The best-case but less likely scenario (15% chance) sees substantially higher fiscal spending and a structural reform agenda that raises Germany's medium-term potential growth rate.

Under their third and last scenario - of an ongoing stalemate, likely because the two-third majority needed for reform is not reached - the growth outlook for Europe's No.1 economy could become weaker than UBS currently expects.

Current polls, UBS notes, suggest that the CDU/CSU, SPD  and Greens could end up with 71% of seats in parliament, leaving the far-right and far-left parties with no veto power.

(Danilo Masoni)

EARLIER ON LIVE MARKETS:

JAPAN: SMALL (AND MEDIUM) IS BEAUTIFUL CLICK HERE

BUY EUROPE: STOXX, FTSE SCALE NEW PEAKS CLICK HERE

BEFORE THE BELL: MIXED BANK EARNINGS, BOE AWAITED CLICK HERE

FOCUS SWINGS BACK TO RATE MOVES, COMPANY EARNINGS CLICK HERE