2025 DAX 40 forecast: 22,500 or 17,000?​

What may the impact be on the German DAX 40 index in 2025?​

November data reveals an accelerating downturn

Germany's closely watched Ifo business climate index fell to 85.7 in November, down from 86.5 in October, marking the fifth consecutive month of contraction. This decline followed a brief respite in October, which had been the first improvement in nearly six months.

The current Ifo assessment component showed notable weakness, falling to 84.3 from 85.7, while the expectations component remained relatively stable at 87.2, slightly down from 87.3.

These figures align with government projections of a 0.2% contraction in gross domestic product (GDP) for 2024, positioning Germany as an underperformer among major global economies.

Services sector weakness compounds industrial concerns

The services sector, previously resilient, has now dipped into contractionary territory, with the purchasing managers’ index (PMI) falling to 49.4 from 51.6. This unexpected decline suggests that economic weakness is broadening beyond the manufacturing sector.

These indicators reflect increased pessimism among German businesses, exacerbated by corporate restructuring announcements and ongoing geopolitical tensions.

External factors weighing on Germany's outlook

The German economy, traditionally Europe’s powerhouse, faces multiple external headwinds:

• US tariffs: with 10% of German exports destined for the US, particularly in the automotive sector, potential tariffs could significantly impact trade relations
• Competitiveness: American tax cuts, deregulation, and lower energy costs may further erode Germany’s competitive position, directly affecting the performance of German automotive stocks
• Investment shifts: corporate investments may increasingly favour US locations over Germany, adding structural challenges to the economy.

Technical recession risks intensify

Historical trends show the Ifo index often lags behind short-term events, suggesting further deterioration in the coming months. Political instability following the collapse of the coalition government adds further uncertainty ahead of February's snap elections.

The combination of weak industrial orders and subdued consumption presents significant challenges for Europe’s largest economy, which could enter its second technical recession since the pandemic by the end of 2024.

Structural challenges versus cyclical factors

German policymakers are repeating a familiar pattern of initial panic, followed by repression and complacency in response to economic shocks. Upcoming elections may delay critical policy decisions on defence spending and investment initiatives.

The urgency to identify and develop new growth sectors has intensified as traditional industrial strengths face growing challenges. Rising international competition and weak domestic demand continue to weigh on the industrial sector, as reflected in both PMI and Ifo survey data.

Market implications and trading outlook

The deteriorating economic indicators have significant implications for European equity markets, particularly German stocks, which may face increased pressure as recession risks mount. The technical outlook for the DAX 40 points to continued volatility in German financial markets through the winter months and into 2025.

Since March, the weekly chart has shown multiple negative divergences, with record highs accompanied by falling levels in the Relative Strength Index (RSI). This divergence signals a potential sharp decline, creating a challenging environment for bullish investors.

Technical analysis

The DAX 40 index has been forming a rising wedge pattern since March 2024, a technical formation that often precedes a bearish reversal. If the index falls below the recent November low of 18,813, it could signal a sharp decline in early 2025. In such a scenario, the index may retest the long-term uptrend line originating from October 2022, around the 17,500 level, and potentially revisit the August low near 17,025.

Conversely, if the 18,813 support level holds, the DAX 40 might attempt to reach the psychological 20,000 mark, possibly before year-end. However, this area is expected to serve as significant resistance, making a decisive breakthrough challenging. Should the index surpass this barrier, the next potential upside target could be around 22,500.

Traders should monitor these key levels closely, as movements beyond them may indicate shifts in market sentiment and potential trading opportunities.

​DAX 40 weekly chart