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

​​Multiple economic indicators point to increasing recession risks in Europe's largest economy, with both the Ifo index and PMI data showing significant deterioration in November.

DAX 40 Source: Adobe images

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

November data reveals accelerating downturn

​On Monday, Germany's closely-watched Ifo business climate index retreated to 85.7 in November from October's reading of 86.5, marking the fifth consecutive month of contraction. This decline follows a brief respite in October, which had marked the first improvement in nearly six months.

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

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

Services sector weakness compounds industrial concerns

​The services sector, previously showing resilience, has now dipped into contractionary territory with a purchasing managers index (PMI) reading of 49.4, down from 51.6. This unexpected decline in services suggests economic weakness is broadening beyond the manufacturing sector.

​These indicators point towards increased pessimism among German businesses, impacted by corporate restructuring announcements and geopolitical tensions.

​External factors weighing on German outlook

​The German economy, traditionally Europe’s powerhouse, faces multiple headwinds from international developments.

​With 10% of German exports destined for the US market, particularly in the automotive sector, potential US tariffs could significantly impact trade relations.

​American tax cuts and deregulation, combined with lower energy costs, might further erode German competitiveness. This could affect share trading, particularly in German automotive stocks.

​Furthermore corporate investment decisions may increasingly favour US locations over German facilities, presenting a structural challenge to the economy.

Technical recession risks intensify

​Historical patterns show the Ifo index typically lags behind short-term events, indicating potential further deterioration in coming months.

​Recent political developments, including the collapse of the coalition government, add uncertainty until February's snap elections.

​The combination of weak industrial orders and subdued consumption presents significant challenges for Europe's largest economy which may enter another technical recession at the end of 2024, its second since the pandemic.

Structural challenges versus cyclical factors

​German policymakers appear to be following a familiar pattern of response to economic shocks: initial panic, followed by repression and complacency.

​The current focus on upcoming elections may delay crucial policy decisions regarding defence spending and investment initiatives.

​The need to identify and develop new growth sectors becomes increasingly urgent as traditional industrial strengths face challenges.

​Intensifying international competition and weak demand continue to pressure the industrial sector, as evidenced by both PMI and Ifo survey data.

Market implications and trading outlook

​The deteriorating economic indicators have implications for European equity markets, especially German stocks, which may face increased pressure as recession risks mount.

​The technical picture suggests continued volatility in German financial markets through the winter months and into 2025.

​The fact that multiple negative divergence can be seen since March of this year on the weekly chart, where the record highs seen since then have been accompanied by falling levels in the Relative Strength Index (RSI), doesn’t bode well for the bulls as it points to a potential swift decline.

​DAX 40 weekly candlestick chart

​DAX 40 weekly candlestick chart Source: TradingView.com
​DAX 40 weekly candlestick chart Source: TradingView.com

​The rising wedge formation since March may be followed by a sharp decline in early 2025 if a fall through the current November low at 18,813 were to occur. In this scenario, a retest of the long-term uptrend, which began in October 2022, at 17,500 and a retest of the August low at 17,025 may well be on the cards.

​While the recent low at 18,813 underpins, though, another attempt at reaching the psychological 20,000 mark, perhaps before year-end, may well unfold. But even then, since the area around the 20,000 level is likely to act as major psychological resistance, the odds of a clean break through this zone being witnessed are slim. Were this to happen, however, the 22,500 mark may represent the next upside target for the DAX 40.

How to trade German markets

  1. ​Research thoroughly and stay informed about German economic indicators
  2. ​Choose whether to trade or invest in German markets
  3. ​Open an account with us
  4. ​Consider various instruments including indices, shares, and forex
  5. ​Monitor positions closely given the current market volatility

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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