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Germany’s Business Confidence Plummets for Fourth Consecutive Month, But DAX Hits Record Highs
Germany’s business confidence declined for the fourth straight month in September, according to the ifo Business Climate Index, yet the country’s stock market remains resilient, with the DAX stock index pushing towards record highs. The contrast highlights the ongoing disconnect between the real economy and investor sentiment.
The ifo Business Climate Index, a widely watched economic indicator based on surveys from 9,000 companies across sectors such as manufacturing, services, trade, and construction, fell to 85.4 points in September. This was a drop from 86.6 in July and below the expected 86. It marks the index’s lowest level since early 2023, signaling worsening business conditions.
“The outlook for the coming months continues to decline. The German economy is coming under ever-increasing pressure,” said Clemens Fuest, president of the ifo Institute. Manufacturing was hit particularly hard, with the index for the sector dropping to its lowest level since June 2020. A lack of orders and pessimism about future demand have added to the sector’s struggles, with core areas of German industry facing increasing pressure.
The trade sector also saw growing skepticism about future conditions, adding to the gloom surrounding Europe’s largest economy. According to private sector data from S&P Global, Germany’s economy contracted in September, with manufacturing posting its steepest decline in a year, and growth in the services sector weakening.
Despite these warning signs, the DAX stock index seems to be thriving. Trading around 19,000 points during early sessions on Tuesday, the index surged by 0.7%, approaching its all-time high. Leading the charge were major German companies like Infineon, which jumped 3.8%, and automakers such as BMW, Porsche, and Mercedes-Benz, all posting gains of over 3%.
The stock market’s buoyancy is reflective of broader global trends. Investors are cheered by signals of monetary easing from central banks around the world. The People’s Bank of China recently announced a series of stimulus measures, including a surprise rate cut, while the U.S. Federal Reserve also slashed interest rates by 50 basis points last week. Expectations of further rate cuts by the European Central Bank are growing, as weak data from the eurozone bolsters the case for more monetary support.
However, challenges remain for Germany’s export-dependent economy. The ifo Institute warned that a potential re-election of Donald Trump in the U.S. could hit German exports hard, especially if he imposes new tariffs. The institute predicted that Germany’s exports to the U.S. could drop by nearly 15%, with auto and pharmaceutical sectors bearing the brunt of the impact.
Despite the gloomy outlook for the economy, the DAX continues to defy expectations, thriving in an environment where investors seem increasingly detached from economic fundamentals.
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