Germany’s stock index DAX hits 20,000 despite economic woes

Germany’s benchmark blue-chip stock index topped 20,000 points for the first time during trading on Tuesday morning, hitting the historic mark shortly after opening.
The DAX, which is made up of 40 large publicly traded German corporations, has been hovering around the 19,000 mark recently but has surged towards 20,000 over the past week despite a continuing raft of grim data about the German economy overall.
The trend is a rare piece of positive news out of Europe’s biggest economy as of late. Germany narrowly avoided recession for the third quarter of the year, but the latest data suggests a winter recession is inevitable in the new year. Added to that is bad news on the jobs front, with a wave of industrial job cuts recently announced at iconic firms such as Thyssenkrupp and Bosch.
Then there’s the serious struggles at carmaker Volkswagen, where job losses and plant closures have been in the offing for months.
Infighting in the country’s three-party ruling coalition over how to deal with the country’s severe economic malaise led to the collapse of the government recently, with snap elections slated for February.
Like elsewhere, Germany has been plagued by high inflation in recent years, leaving consumers strapped for cash. Industrial orders and production in the export nation have also fallen, and surveys show German companies are increasingly pessimistic about the future.
“Looking ahead, there is very little reason to expect any imminent change for the economy,” Carsten Brzeski at ING Bank said last week. “In fact, the expected economic policies of the incoming US administration as well as continued policy uncertainty as a result of the German government’s collapse are likely to weigh on sentiment in Germany.” 
So why the investor optimism?
“Ironically, I think there’s a strong argument to make for an inverse correlation between economic performance and stock market performance,” Ben Ritchie, head of developed market equities at investment company abrdn, told DW earlier this year, when the DAX also broke new ground despite weak overall economic data.
“The revenues for these companies aren’t in Germany,” Ritchie said. “So the German economy doesn’t matter.”
Retail customers and production sites for these large, international companies are primarily located outside of Germany. Experts such as Ritchie say the health of those markets, along with structural developments within specific industries and companies, has a far greater influence on DAX performance than the domestic economy does.
However many argue that this is not the case for small and medium-sized enterprises (SMEs) in Germany, which employ over 50% of the country’s workforce but aren’t represented in the DAX index.
As a result, their fortunes are much more tied to the domestic economy and its problems with rising costs and other structural challenges. 
It’s one of the reasons why business morale fell more than expected in Germany according to a survey released on November 25 by the country’s Ifo Institute. “The reading confirms that the German economy remains in the doldrums,” Franziska Palmas, senior Europe economist at Capital Economics, said about the business sentiment figure.
The strength of the US economy is probably more significant to the DAX’s current streak than Germany’s. High coronavirus relief spending and low energy costs there have helped boost consumer spending over the past 18 months.
However that has not been mirrored in Germany where consumer spending remains moribund, despite a significant cooling of inflation.
Yet some experts have suggested a sluggish domestic economy could ultimately be a good thing for stocks.
For Germany’s largest companies, a weak German economy can lead to a cheaper euro as well as lower borrowing costs as the ECB tries to stimulate spending in Europe — which it is currently trying to do with a series of interest rate cuts. At the same time, stagnation would have little impact on revenues due to their large overseas markets.
Edited by: Arthur Sullivan
Editor’s note: The article, originally published on February 29, 2024, was updated on December 3, 2024 to reflect that the German DAX has breached the 20,000 mark.