The AfD’s Victory in Saxony-Anhalt and the Outlook for German Politics, Trade and Economic Policy

Risk Outlook: September 10, 2026

Sep 10, 2026

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Thomas Goldstein and Ian Cameron examines the implications of the AfD's victory on German politics.

The AfD’s Victory in Saxony-Anhalt and the Outlook for German Politics, Trade and Economic Policy

By Thomas Goldstein and Ian Cameron

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The populist right-wing Alternative for Germany (AfD) party won regional elections in Saxony-Anhalt on September 6, reverberating across Germany’s national politics and, by extension, across the EU’s politics. The Christian Democratic Union (CDU)-led government in Berlin has sustained a blow to its position, and the parties in the federal coalition will have to work to shore up their domestic political strength. This could lead to greater political instability in Berlin as the coalition parties are less willing to compromise their positions. This in turn could spill over into EU policymaking, undermining Berlin’s leadership role and increasing uncertainty at the EU level during a critical period for the bloc’s trade and industrial policy agendas.

In today’s full analysis:

The Results of Saxony-Anhalt Regional Elections, Explained
Saxony-Anhalt’s Impact on Berlin
The Risks for Germany on the European Stage

Read the Full Report Here

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Europe

France and the UK are coordinating a new sanctions package on Israel due to increased settler violence in the West Bank. London and Paris are followed by Canada, Denmark, Finland, Iceland, Ireland, Norway, Poland, Portugal, Spain, and Sweden. Specifically, this bloc has pledged to introduce national- or EU-level restrictions on trade in goods with Israeli settlements in the West Bank. These actions are in opposition to “actions tantamount to the annexation of Palestinian land,” including recent plans to build 1,200 new homes in the E1 area of East Jerusalem. The new UK Foreign Secretary Ed Miliband stated that the British government “agrees that there is ethnic cleansing of Palestinians in areas of the West Bank” and criticized the previous Starmer government for not taking more expansive action.

The pathway to specific sanctions remains unclear because all the signatories but the UK and Canada must abide by EU customs law. The road to imposing EU trade restrictions is uphill and will meet resistance from several EU member states. Germany, a chief opponent, previously declared Israel’s security as a raison d’etat and has cultivated close defense industrial ties. Other countries, like Greece, have recently concluded new air defense cooperation agreements with Jerusalem, and others like Slovenia have ideological affinities with Israel’s government.

Read More: Yahoo!news, Le Monde, Politico

Middle East

Yemen’s Iran-backed Houthis seized the port of Mokha amid reignited fighting in Yemen. The city is a key Red Sea port at the southernmost tip of Houthi territory, previously mostly constrained to Yemen’s northwest, with much closer access to the southerly Bab al-Mandeb Strait. The group seized the key location in a swift ground offensive following days of escalated fighting with Saudi Arabia.

The seizure will expand the Houthis’ influence over the Red Sea. Control of Mokha will increase the Iran-backed proxy group’s ability to project power and control the flow of traffic through the Bab al-Mandeb Strait, tightening its blockade on Saudi exports and potentially expanding restrictions to other forms of trade. The group is expected to push further southward in the coming days in a bid for more direct control of the Bab al-Mandeb.

The fighting could trigger the first use of the Mecca Pact as Pakistani reportedly considering striking the Houthis at Saudi request. Turkish media reported yesterday that Pakistan is “likely” to carry out airstrikes against the Iran-backed rebels at Saudi Arabia’s request. The strikes would be a major test run for the trilateral mutual defense agreement between Pakistan, Saudi Arabia and Turkiye (which many analysts currently see as a paper tiger), as well as a significant escalation in the regionalization of the war. Open conflict with an Iranian proxy would also complicate Pakistan’s role as mediator in ongoing US-Iran negotiations.

Read More: New York Times [paywall], France 24, Reuters [paywall], Turkiye Today

Asia-Pacific

The Philippines on Tuesday unveiled its $34.4 billion AI infrastructure masterplan which the government seeks to mobilize through 2033. The plan seeks to increase the country’s installed AI data center capacity from 50 MW to 1.5 GW, as well as support deployment of high-capacity fiber networks, submarine cable systems and regional internet exchange points. Manila hopes these initiatives will boost GDP by 10%-12% via AI-driven productivity gains, new digital services and overall boosts to its workforce along the value chain.

The plan is understood to be Manila’s response to close a growing gap with Southeast Asian peers that have already attracted substantial hyperscaler investment, like Malaysia, Singapore, Indonesia and Thailand. Two US hyperscalers are reportedly assessing sites in the Philippines and seeking roughly 200 MW of capacity over five years, possibly providing an early test of whether Manila can convert its infrastructure ambitions into private-sector investment. The push also complements efforts to position the Philippines within the US-led AI and semiconductor supply chain through Pax Silica. The proposed 4,000-acre industrial hub in New Clark City is intended to support advanced manufacturing and other AI-related supply-chain activities.

Americas

A recent poll indicated that in a potential runoff for Brazil’s October presidential elections, Flavio Bolsonaro would beat incumbent Luis Inacio Lula da Silva (Lula) by one point. While the estimate represents a technical tie, with the poll including a margin of error of two percentage points, it indicates a narrowing gap between Lula and Bolsonaro. Polls over the past few months had put Lula comfortably ahead of Bolsonaro by at least a few percentage points as the son of Jair Bolsonaro, who is serving a sentence for attempting a coup in 2023, was linked to the Banco Master scandal. The fallout from Banco Master, the biggest banking fraud scandal in Brazilian history, continues to unfold and upend Brazilian politics.

Brazil’s Supreme Court is currently facing a historic crisis, as multiple sitting justices have been entangled in the Banco Master affair. Most recently, Alexandre de Moraes, the justice who oversaw the conviction of Jair Bolsonaro, was recently tied to Daniel Vorcaro, the disgraced banker who formerly led Banco Master and was arrested at Sao Paolo airport last November. Vorcaro reportedly asked Moraes for advice while he was being investigated, including whether he should attempt to flee the country. Bolsonaro’s campaign has jumped on the controversy, seeking to portray Lula and Moraes as two sides of the same coin. As Lula’s own son faces corruption allegations, the recent developments have increased uncertainty around the election outcome. Brazilians will go to the polls on October 4 for the first round of voting.

Read More: Reuters [paywall], Valor International, O Globo [Portuguese], AS/COA

Geoeconomics

US producer inflation accelerated moderately in August. The Producer Price Index rose 0.4% from July, when it increased 0.1%, while annual inflation climbed from 4.8% to 5.4%. Goods prices increased 1.1%, with energy accounting for more than three-quarters of the advance: energy prices rose 4.2%, including a 24.1% jump in diesel. Services prices increased just 0.1%, although transportation and warehousing costs rose 2.3%. Underlying inflation was steadier: the measure excluding food, energy and trade services increased 0.3%, down from 0.4% in July, while its annual rate remained at 4.7%.

The PPI numbers, in addition to Friday’s CPI report, will be pivotal for the Federal Reserve’s September 15–16 interest-rate decision. Economists expect August consumer prices to rise 0.4% overall and 0.2% excluding food and energy. There is also disagreement about what the Fed’s decision will be: about 70% of economists in Reuters’ September 4–9 poll expect the Fed to hold its benchmark rate at 3.50%–3.75% next week, down from 90% in August, while FedWatch puts the probability of a 25-bps hike at about 70%. Financial markets have nevertheless priced in two increases by March, underscoring uncertainty about the path ahead. The meeting’s updated economic and interest-rate projections will also indicate whether officials expect persistent inflation to require multiple increases.

Read More: Bureau of Labor Statistics, Reuters [paywall], Atlantic Council

Disruptive Technology

Anthropic declined to pre-release an AI model in development, Mythos 5.1, with the UK AI Security Institute, instead sharing it only with American evaluators, including the Trump administration. Anthropic did not clarify its decision to prioritize American vetting. Some UK officials fear that the Trump administration has pushed Anthropic to pre-release powerful models potentially sensitive to national cybersecurity only with the US, which can intensify protectionism around the technology. In June, the US Commerce Department issued far-reaching export controls on Anthropic’s Fable and Mythos models after detecting a potential jailbreak method to bypass safety guardrails. If AI protectionism is here to stay, European partners may further distrust dependence on US technology services.

Read More: IT PRO, Financial Times [paywall]

Energy

Natural gas prices in Europe have reached their highest level since January 2023. European natural gas was trading at over €80 a megawatt-hour on September 9, the first time that prices have reached that level since the energy shock triggered by Russia’s invasion of Ukraine in 2022. This still leaves current prices well below their peak level from 2022, but they have doubled since the US war with Iran began. However, if prices stay at these levels, that will worsen Europe’s already troubled economic outlook in the near term.

The surge in pricing occurred against the background of a potential Ukrainian strike on Russian gas production facilities. Ukraine reportedly struck Russia’s Yamal region, which is a major hub for Russia’s gas industry. While Russian pipeline gas to Europe has largely stopped flowing, Europe still relies on Russia’s Yamal LNG project for around 5% of its gas requirements. Any disruption would compound supply issues from the Middle East.

Europe is also facing low gas storage levels heading into winter. The EU will likely enter the winter months with its lowest gas storage levels in the past 15 years. Storage levels also differ across the EU. For example, both Germany and the Netherlands have only filled their storage capacity to around 50%.

Read More: Wall Street Journal [paywall], Bloomberg [paywall], CNBC

Defense

Ukraine has signed a long-term contract for 1,000 Patriot interceptors. During a meeting of the Ukraine Defense Contact Group (the Ramstein format), Ukraine’s defense minister Yevhen Khmara announced that Kyiv is signing contracts with allies for Patriot missile deliveries. These contracts will be funded with the EU’s loan to Kyiv. The EU recently allowed Ukraine to use €3.2 billion ($3.7 billion) from its loan for purchasing Patriots.

The decision by the EU to fund Ukraine’s Patriot purchases bends its own rules. The requirements of the EU’s loan to Kyiv, the Ukraine Support Loan, require that funds be directed to suppliers in the EU or the European Economic Area. However, because Patriots are so critical for Ukraine’s war effort, Kyiv is allowed to use EU funds for them, although Kyiv must ask for an exemption each time.

Kyiv will likely face a long wait for deliveries to begin. Due to its immediate needs and the likelihood that deliveries will only begin in the coming years based on new contracts, Kyiv is also asking its partners to provide interceptors. Germany has already agreed to give Ukraine additional PAC-2 interceptors from its stocks.