• A significant number of German voters have not yet decided who to vote for in Sunday's upcoming federal election.
• That makes the outcome of the vote even more unpredictable than polls already suggest.
• As many as 40% of voters are undecided as to how they will vote, according to a survey last week by the Allensbach Institute for the Frankfurter Allgemeine Zeitung newspaper.

The outcome of Germany's federal election on Sunday looks impossible to predict, with one recent survey indicating a that significant number of Germans have not yet decided who to vote for.

A survey by the Allensbach Institute last week found that 40% of 1,259 people were undecided on how they will vote. The survey, conducted for the Frankfurter Allgemeine Zeitung newspaper, also found that the majority were not drawn to any of the candidates standing for chancellor, nor their political parties.

It comes as the latest opinion polls indicate a very close race.

Politico's poll of polls indicates that the SPD will get 25% of the vote, the CDU/CSU will receive 21% of the vote and the Green Party is expected to get 15%. Then comes the pro-business, Free Democratic Party (FDP) and the right-wing Alternative for Germany (AfD) party, both with 11%. Far-left Die Linke is seen with 7% of the vote.

The dilemma facing many voters comes as Chancellor Angela Merkel, who has been in office for 16 years, prepares to leave office.

In previous elections her conservative bloc of the Christian Democratic Union and Christian Social Union (CDU/CSU) has won with relative ease, but this is looking increasingly unlikely with Merkel's elected "successor," Armin Laschet, failing to appeal voters in the same way.

"We have no incumbent really," Thomas Gschwend, a professor at the Department of Political Science at the University of Mannheim, told CNBC Thursday.

"The CDU tried to stage their campaign that Laschet was a natural successor of Merkel, but people just didn't buy this story because he's not Merkel, he's not like her. Many people who preferred Merkel were not necessarily supporters of her party ,so if you replace the leader of the party, many people might think: 'I might not vote for this party anymore'."

These voters, Gschwend said, are now "up for grabs."

International challenges

Merkel's departure could be accelerating a decline in support for the CDU/CSU seen in recent elections, showing that Germans, and particularly younger voters, are eager for change.

This has been borne out in voter polls this year, with the Green Party leading the polls at one point in April. It was then overtaken by the left-leaning Social Democratic Party (SPD), which has maintained its lead in recent weeks, ahead of the CDU/CSU.

SPD politician and leader of the opposition in Schleswig-Holstein region, Ralf Stegner, told CNBC on Thursday that German voters wanted a new chancellor that could fill Merkel's shoes.

"Most people want to see somebody at the top of the government who's able to do the job and also to hold the country together. These are difficult times and there are a lot of things that need to be done in terms of international crises and the coronavirus issue and in terms of a lot of challenges we have in Europe and in our country."

"Voters in Germany measure their chancellor candidates on how they could deal with the international challenges and how they would be on the stage with the American or Russian presidents or Chinese leaders," he added.

This factor, Stegner noted, could give the SPD's candidate Olaf Scholz, who is used to top-tier politics given his role as German finance minister and vice chancellor, the biggest advantage over his rivals — the main contenders being the CDU/CSU's Armin Laschet and Annalena Baerbock from the Green Party.

Coalition confusion

A coalition government is extremely likely given the expected close vote, with pundits now guessing what formation this might take.

Eurasia Group's Europe Director Naz Masraff said Wednesday that the chance of a chancellery led by the SPD's candidate Olaf Scholz now had a 60% likelihood, compared to a 40% chance for the center-right CDU/CSU's Armin Laschet.

The political risk consultancy put the chances of an SPD-led so-called "traffic light" coalition (with the Greens and the Free Democrats (FDP)) — as the most likely post-election scenario, giving this a 45% likelihood. It noted that the chances of a CDU/CSU-led "Jamaica" government (with the Greens and FDP) had fallen to 30%.

Despite Merkel trying to revive Laschet's election chances, the CDU/CSU alliance could find itself out in the cold when coalition negotiations take place. That would be a shock for the alliance, which has dominated German politics since 1949.

'Watershed moment'

The 2021 vote is unpredictable for a variety of reasons, including the high number of mail-in votes expected this year.  

Factors to watch on election day will be whether the recent slight improvement in the polls for CDU/CSU turns into some last-minute momentum on election day, Teneo Intelligence's Deputy Director of Research Carsten Nickel said, as well as how the Greens fare.

Still, he told CNBC on Thursday that it's very difficult to guess which party will gain from undecided voters. 

"We've had polls suggesting that up to 40% of voters still haven't made up their minds so that ultimately serves as a reminder of this watershed moment in German politics," he told CNBC's Street Signs. "After 16 years of stability, continuity, and utterly predictable election campaigns, all of that certainty has gone and we're looking at a tight race."

The formation of a coalition is expected to be a long and drawn-out affair given the divergences between the parties on matters such as fiscal policy and climate targets.

It has already proved contentious during the election campaign.

Laschet, for example, has said that Scholz and the SPD could represent a security risk if they allow the far-left Die Linke party, which wants to scrap NATO, into a coalition government. For his part, Scholz has said he is open to negotiations with any party, except for the right-wing AfD, as long as there is a strong commitment to NATO.

Speaking to CNBC on Wednesday, Scholz reiterated his commitment to the military alliance, commenting that "as the minister of finance for Germany we increased the budget for our military spending much more than all the times before. It was an increase of 37% and this was something that I did deeply from my heart because we need a very strong defence infrastructure in Germany together with our partners in the EU and NATO."