Germany’s benchmark index, the DAX-30, fell further than most other major markets in 2018. One problem is a downturn in Germany. The other is the slowdown in global growth.
The German economy shrank in the third quarter of 2018
(Image credit: franckreporter)
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.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Marina Gerner is an award-winning journalist and columnist who has written for the Financial Times, the Times Literary Supplement, the Economist, The Guardian and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany.
Marina is also an adjunct professor at the NYU Stern School of Business at their London campus, and has a PhD from the London School of Economics.
Her first book, The Vagina Business, deals with the potential of “femtech” to transform women’s lives, and will be published by Icon Books in September 2024.
Six investment funds for beginners
Farming isn't for the faint-hearted – and isn't profitable
