A brief overview of the weather situation: This is what the leading economic institutes expect for Germany second year of recession in a row. The economy will continue to shrink in 2024 and only grow hesitantly in 2025, according to the researchers. Unemployment is increasing again, also because of tough austerity programs many corporations. The mood in the manufacturing sector is at its lowest level since the beginning of the Corona crisis. Ifo economic expert Klaus Wohlrabe sees the German economy as “on the verge of a downward spiral“.
And the Dax? He jumps from one record high to the next, as if Germany as a location was bursting with strength.
Have investors lost sight of reality? The stock market trades expectations, not the dreary economic present. But the outlook for the coming months is also gloomy: economic researchers have halved their growth forecast for 2025 to 0.8 percent because Numerous key German industries are in a deep structural crisis. This affects the majority of DAX companies directly.
Cars, chemicals, pharmaceuticals: key sectors in distress
Example automotive industry: Volkswagen has its sales and profit expectations last week capped for the second time in a row and started a tough restructuring program. Thousands of jobs are threatened, and closures of German plants are also being discussed. Mercedes justified its second profit warning within a few weeks
among other things with the weak demand in China, which hits German premium manufacturers hard.
As BMW When its forecast was cut at the beginning of September, the Munich-based company cited the weak overall market also problems with Continental brakes
. The supplier from Hanover is in the middle of a tough one Restructuring program including job cuts. At the (unlisted) supplier ZF Friedrichshafen could by 2028 every fourth job in Germany will be lost, that’s around 14,000 jobs. The crisis in the auto industry is also affecting the chip manufacturer Infineon under pressure, which generates around half of its sales in the automotive sector.
There has been a constant crisis in the chemical industry for years. BASF and also Covestro suffer from high energy prices and weak demand, BASF boss Markus Kamieth now flees forward
. Deutsche Bank and Commerzbank have become lightweights in international comparison, which threatens Commerzbank to be swallowed up by the Italian UniCredit. And the loss of importance of the once leading German pharmaceutical industry can be seen in the decline of… Bavarian-Group, which followed the disastrous takeover of Monsanto and the foray into the seed business had to report the flop of hopefuls in the pharmaceutical division. It happened similarly Merckwho, like Bayer, have launched an austerity program.
VW, Mercedes, BMW, Conti, BASF, Bayer – all of these DAX companies have been suffering from a melting stock market value for years. Why is the Dax still climbing to new heights? The traction of tech heavyweights SAP, the is the only DAX company that can keep up with the price performance of the US tech giants
, is not enough for that. Instead, three factors in particular have recently given the Dax a boost.
Interest rate cuts as a stimulant
Once again, interest rate cuts are intended to keep investors happy. The central banks in the USA, in Euroland, in Japan and China are the most important driving force for the global financial markets: if interest rates fall, stocks become more attractive compared to bonds and savings accounts. Many players in the stock market also trade with borrowed money: the more money the US Federal Reserve Federal Reserve, the European Central Bank (ECB), the Bank of Japan (BoJ) and the Bank of China (BoC) pump into the system, all the better. The ECB had theirs Interest rate cuts began in the summer
. The US Federal Reserve The Fed followed suit in September with a surprisingly significant interest rate cut of 0.5 percent and is fueling investors’ hopes of further major interest rate hikes. “The Fed’s significant cut is fueling price fantasy around the world,” says Ann-Kathrin Petersen from asset manager BlackRock. But an overly optimistic view would be premature: if US inflation picks up again, the high expectations of the Fed are likely to be disappointed.
Since inflation rates in Spain and France have fallen significantly, there will also be one further interest rate cuts by the ECB in October increasingly likely, says Daniel Hartmann, chief economist at asset manager Bantleon. If inflation rates continue to fall, the “doves” in the ECB Governing Council, who advocate loose monetary policy, are likely to gain the upper hand. And cheap money is and remains the strongest stimulant on the financial market.
China is supporting the economy with billions
The latest powerful stimulus for the stock markets: China’s government and the Chinese central bank decided last week to boost the flagging economy with interest rate cuts and billions of dollars in cash injections. “It appears that the Fed’s aggressive interest rate policy has prompted the leadership in Beijing to take more decisive action as well,” said Marc Dowding, CIO of Blue Bay Asset Management.
Beijing apparently wants to invest more than 250 billion euros in strengthening the economy. In addition, the real estate sector is supported and the Requirements for Chinese banks lowered. All of this is also intended to strengthen consumption among uncertain consumers. A recovery in demand in the Far East would be extremely important for German companies. Without a recovery in China, many DAX companies will hardly be able to find their way out of the twilight state. With the latest price gains, the Dax has raised its China cap.
Why not discount stocks from Germany?
The third factor: industry rotation. Compared to the highly valued US stock market, the German stock market is a dwarf. The US company Apple alone is worth almost twice as much on the stock market as all 40 DAX companies combined. Compared to stock market stars like Nvidia (price-earnings ratio of more than 50) or the European champion Novo Nordisk (P/E ratio 41), German stocks appear dirt cheap: Volkswagen currently has a P/E ratio of under 5, the P/E ratio of Bavarian is actually negative after the billion-dollar loss last year.
The recent profit-taking in the US tech sector could be a sign of an industry rotation, says Marcel Huber from asset manager Black Point. He considers the car manufacturers listed in the Dax to be interesting because of their low valuations: “The competitive pressure is increasing, but German manufacturers have not forgotten how to build cars,” says Huber. Although low valuations alone are not a reason to restructure, the signs of improvement in the industry increased with the signs of hope from China.
More on the topic
Which brings investors back to the German economy. The mood among economic players is currently so bad that things can only get better. In the long term, in order to raise the DAX above the 20,000 point mark, more than just a change in mood is needed.