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Germany's Economic Challenges

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Throughout most of this century, Germany consistently achieved economic success, asserting its dominance in global markets for premium goods, including luxury automobiles and industrial machinery. The nation’s robust export activity powered nearly half of its economic output, contributing to a thriving job market, and bolstering the government’s fiscal reserves while other European countries grappled with mounting debts. Germany’s accomplishments were widely touted as a model for other nations to emulate.

However, this paradigm has shifted. Presently, Germany finds itself as one of the worst performing major developed economy in the world, as both the International Monetary Fund and the European Union anticipate a contraction in its economic output this year. The primary catalysts for this shift are Russia’s invasion of Ukraine and the subsequent disruption in the supply of affordable Russian natural gas, which has historically fuelled Germany’s energy-intensive industrial sectors, cementing its position as Europe’s manufacturing powerhouse.

Germany faces the impending risk of “deindustrialization” due to the confluence of elevated energy costs and governmental inaction on persisting issues that may encourage the relocation of new manufacturing facilities and high-paying employment opportunities elsewhere. The loss of cheap Russian natural gas required for industrial operations has inflicted substantial damage on the economic model of Germany.

After Russia’s decision to curtail the supply of natural gas to the European Union, an energy crisis gripped the bloc, which had hitherto sourced 40% of its fuel from Moscow. The cost of natural gas has approximately doubled compared to 2021, negatively affecting companies reliant on it.

It appears that Germany won’t escape a second recession this year as the economy undergoes a persistent industrial weakness. German industrial production dropped again in August for the fourth consecutive month and is now more than 7% below its pre-pandemic level.

The German economy has not being stimulated by large deficit spending by the government like in the United States, therefore the country is now contemplating another quarter of declining GDP. The economy is widely expected to shrink this year and grow modestly in subsequent years.

A graph of stock market

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Source: TradingView

Gross domestic product declined 0.2% in the September quarter and will probably fall a further 0.1% before year end. Forecasts show Germany GDP will drop 0.4% in 2023 and rebound merely 0.5% next year. This bounce is significantly weaker than the previously expected 0.9% and 1.3% respectively, from the International Monetary Fund.

Regardless of the outcome next year, Germany’s economic prospects continue to be grim as there are long standing challenges to growth. The country needs structural reforms in regard to energy prices, infrastructure, immigration, and so on.

The ECB’s next decision is on the 26 th of October, and while markets are widely expecting interest rates to remain on hold this month, the prospect of another final rate hike by year end is on the cards. According to new economic poll the European Central Bank won’t lower interest rates until September 2024.

Despite the economic challenges the country faces, the German benchmark DAX 40 index is trading near its all-time high. However, we note some ominous signs developing on the chart over the past two months, raising the question if the current bull market is sustainable. A large bearish divergence has formed throughout 2023 showing that internal momentum conditions are weak. The long-term up trend line and key support of 15,456 have both been broken down recently, suggesting that lower levels could unfold in the months ahead.

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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Julian Manoilov

Marketing Lead

Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Oktay Kavrak

Head of Communications and Strategy

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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