German Stock Market 2023: Overview

The DAX index, or the German stock market, has witnessed substantial growth in 2023, reaching a new all-time high, despite the country’s economy displaying signs of weakness. On December 6, 2023, the DAX ended at a record high of 16,656 points, which was 0.7% higher than the previous day. Learn more about it to trade German stocks on Headway.

Why growth?

However, throughout 2023, the German economy faced some challenges, including a decline in industrial production and losses in purchasing power due to high inflation, which negatively impacted private consumption.

The growth in the DAX index is attributed to investors’ confidence in the potential cut of interest rates, which outweighs concerns about a potential recession in the country. However, the German economy has been underperforming other large regional economies like France, Italy, and Spain, with its gross domestic product (GDP) reducing by 0.1% in the third quarter.

The Frankfurt Stock Exchange, where the DAX is listed, has witnessed a significant rise in the total market capitalization of all domestic shares listed on the exchange, from 2002 to March 2023. The leading companies listed on the Frankfurt Stock Exchange in Germany by market capitalization have also increased.

What affects the market now?

The German stock market is significantly affected by interest rates. A reduction in interest rates by the European Central Bank (ECB) can lead to an increase in the German interest rate and a decrease in domestic bond yields, resulting in higher stock returns. Conversely, an increase in interest rates by 25 basis points can lead to a decrease in the stock market indexes by 0.3% to 2.0% depending on the sectors.

The ECB’s unconventional monetary policy has caused volatility in the German stock market, which is influenced by various factors, including interest rates, and may affect the stock market through confidence channels, the bank credit risk channel, the portfolio-rebalancing channel, and the signaling channel.

While the German economy is expected to grow in the coming years, it’s important to keep in mind that the stock market’s performance is influenced by several factors, including interest rates.

The forecasts

The latest macroeconomic forecast for Germany predicts that the economy will grow by 0.8% in 2024 and 1.2% in 2025, driven by a rise in domestic demand thanks to increased real wages and recovering foreign demand.

The energy supply situation, which has eased for the time being, is not expected to be over soon. Domestic demand is set to rise, driven by a real wage increase, and this is expected to support a pick-up in GDP growth to 0.8% in 2024 and 1.2% in 2025.

In conclusion, the German stock market has witnessed significant growth in 2023, although the country’s economy is facing some challenges. The German economy and stock market’s outlook in 2024 and 2025 will depend on various factors, including interest rates, inflation, and the energy supply situation.

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