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German Economy Faces Clouds on the Horizon

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The German economy likely shrank 0.3% in the fourth quarter of 2023 amid persistent inflation, high energy prices, and slower foreign demand, figures with initial estimates from the Federal Statistical Office revealed on Monday. Official figures for the last quarter of 2023 are expected to be announced on the 30 th of January.

The upwardly revised third quarter helped Germany to avoid two consecutive quarters of contraction, which is a definition of a recession. For the full year, German GDP is estimated to have contracted by 0.3% from 2022, the weakest among major European countries.

According to the International Monetary Fund (IMF) Germany is likely to be the only G7 economy that registered negative growth in 2023. The IMF predicts Germany to grow 0.9% in 2024, well below the 1.4% anticipated for advanced economies.

Stagflationary pressures and prospects of a recession are building up amid falling manufacturing activity. In the whole of 2023, the industrial sector output tumbled by 2%, driven by lower production in the energy supply sector. The manufacturing output also dropped, by 0.4% due to declines in the automotive industry.

The higher interest rates from the European Central Bank (ECB) aiming to combat sky high inflation, have compressed construction of new dwellings. Despite the high borrowing costs, building activity managed to rise by 0.2%.

The service sector still grew, although slower than before, and private consumption declined by 0.8%. Investments dropped by 0.3%, government spending shrank by 1.7%, and imports fell more than exports, according to the Federal Statistical Office.

The German economy has encountered severe headwinds since Russia’s war in Ukraine, which sent inflation and the cost of energy soaring. The surge in natural gas prices for the energy-intensive industries, following the halt of previously affordable prices, played a crucial role.

Concurrently, Germany grappled with skilled labour shortages, which in addition to the global slowdown in manufacturing activity, have exerted additional pressure on the huge factory sector. The multiple crises collectively, resulted in a deceleration of economic development in 2023.

Additionally, Germany faced increased competition from China, which was a former reliable market for German products. The eurozone aggressive interest rate hikes, unfavourable financing conditions, and weak domestic and international demand, further contributed to the strain of the German economy.

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Source: TradingView

While a modest recovery is expected in 2024, with the German Bundesbank central bank forecasting growth of 0.4%, the recent budget upset and potential shipping delays triggered by the conflict in the Middle East, could cloud the outlook.

In our view, this forecast may turn out to be an optimistic one, as Germany continues to deal with its recent economic crisis. Germany’s Constitutional Court shock ruling at the end of 2023 blew approximately €59 billion hole in the government budget, suspending its plans to revive the economy. Consequently, the budgets for both 2023 and 2024 were reworked.

The budgetary constraints could exert further pressure on consumer spending which has been declining throughout 2023. Additionally, a slowdown in the global economy could have an adverse impact on Germany’s exports, which had sluggish demand in 2023.

Despite the stagnating German economy, the DAX 40 index has reached a fresh all-time high of 17,003 points in mid-December 2023. As we enter 2024, the index may experience a pull back in the first quarter to unwind its strongly overbought momentum conditions; however, we see good prospects of slow and gradual recovery in the second half of the year. We remain cautiously optimistic about the stock market outlook in the year ahead and we see levels to 17,800 as achievable.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Violeta Todorova

Senior Research

Violeta è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.

Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.

Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.

Julian Manoilov

Marketing Lead

Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.

Oktay Kavrak

Head of Communications and Strategy

Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.

È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.

Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.

Sandeep Rao

Research
Sandeep è entrato a far parte di Leverage Shares nel settembre 2020. È responsabile della ricerca sulle linee di prodotto esistenti e nuove, su asset class e strategie, con particolare riguardo all’analisi degli eventi attuali ed i loro sviluppi. Sandeep ha una lunga esperienza nei mercati finanziari. Iniziata in un hedge fund di Chicago come ingegnere finanziario, la sua carriera è proseguita in numerose società ed organizzazioni, nel corso di 8 anni – da Barclays (Capital’s Prime Services Division) al più recente Index Research Team di Nasdaq. Sandeep detiene un M.S. in Finanza ed un MBA all’Illinois Institute of Technology di Chicago.

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