Germany's benchmark index, the DAX-30, was far from the only stockmarket to suffer its worst year in a decade in 2018. But its 18% decline was worse than that of most other major markets; the FTSE 100 lost some 12.5% last year. One problem is a downturn in Germany.
GDP grew by only 1.5% last year, its slowest rate in five years. The economy shrank in the third quarter, and the latest surveys suggest it barely managed to expand in the fourth. Industrial production showed a 1.9% fall in November, rather than the predicted 0.3% rise. Year-on-year this amounts to a 4.6% drop, the worst performance since the financial crisis.
A geared play on global growth...
Out of all the major global economies, Germany is the most reliant on trade and "signs that the world economic cycle is past its peak has led to an outbreak of pessimism among the country's manufacturers," says Claire Jones in the Financial Times.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
China is slowing down and global trade is cooling. This has hit Germany in particular because exports make up 47% of its GDP, and many of those exports go to China. Both Daimler and BMW have issued profit warnings, blaming the prospect of new tariffs and new emissions tests for weakening demand, says Spriha Srivastava on CNBC. According to Bernstein, German carmakers made 40% of their profits in China last year.
... implies a potential bounce
No wonder the latest Bank of America Merrill Lynch survey of global fund managers showed 60% expect weaker global growth this year the highest proportion since 2008.
Still, as The Economist notes, there is a more optimistic scenario. The discussions between the US and China could disperse the "trade war clouds". Furthermore, "tax cuts and looser monetary policy in China could stimulate spending in the private sector". This would bolster other Asian economies, and increase demand for European exports once again, which would "buck up activity in the eurozone".
What's more, European stocks are "cheap", following the latest market slide, according to Jens Ehrhardt of DJE Kapital in Wirtschaftswoche, while Austria Boersenbrief points out the DAX companies remain on track to pay out a record sum in dividends in 2019. So the index could mount a strong recovery. There is a chance that in stark contrast to last year, it could be one of the year's best-performing stockmarkets in 2019.
Marina has a PhD in globalisation and the media from the London School of Economics, where she worked as a teaching assistant on the MSc Global Media. In 2014 she was invited to be a visiting scholar at Columbia University's sociology department in New York.
She has written for the Economists’ Intelligent Life magazine, the Financial Times, the Times Literary Supplement, and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany. She is trilingual and lives in London. She writes features and is the markets editor at MoneyWeek..
December 2023 NS&I Premium Bond winners - check now to see what you’ve won
If you hold money in NS&I Premium Bonds, you can check from today (2 December) to see if you have won in the December prize draw. Here’s how to check.
By Vaishali Varu Published
OpenAI – corporate drama unleashed
OpenAI, the firm behind ChatGPT, was in uproar as its boss was booted out, briefly snapped up by Microsoft and then brought back again.
By Dr Matthew Partridge Published