Monthly Report: German Economy Continues to Struggle in 2024

Monthly Report: German Economy Continues to Struggle in 2024

The German economy remains mired in a prolonged period of weakness that began in mid-2022, according to the latest Monthly Report from economists. Real GDP is expected to have contracted slightly in the third quarter of 2024, with stagnation likely in the fourth quarter. Despite these challenges, a full-blown recession, characterized by a broad and persistent decline in economic output is not foreseen.

Ongoing Competitiveness Challenges

Industrial output and construction activity were significantly lower in July and August 2024 compared to the previous quarter. Weak demand in these sectors has been driven by high financing costs and uncertainty about future economic and political conditions, leading to lower investment activity.

Foreign demand for German industrial products remains subdued despite moderate growth in key sales markets. This is indicative of continued competitiveness problems in the German industrial sector, with both domestic and foreign demand staying weak, causing low capacity utilization in manufacturing.

Limited Support from Service Providers and Consumption

While service providers have offered some support to the economy, the overall impact has been limited. Private consumption has also been modest, despite rising wages that outpace inflation and increase real incomes. However, consumers remain cautious, choosing not to fully utilize their increased spending power.

Labour Market Outlook

The labour market in Germany remains relatively stable, but signs of stress are emerging, particularly in sectors affected by weak demand, such as manufacturing and retail. Despite this, substantial recruitment is seen in sectors like healthcare, education, logistics, and financial services.

Unemployment rose slightly in September, with 2.82 million people registered as unemployed (up by 17,000 from August), but the unemployment rate remained steady at 6.0%.

Inflation Expectations

Germany's inflation rate declined further in September, measured at 1.8% (down from 2.0% in August) according to the Harmonised Index of Consumer Prices (HICP). Falling energy prices contributed significantly to this decline, while food and industrial goods inflation remained largely unchanged.

However, President of the European Central Bank, Christine Lagarde said at several speeches it is expected that inflation will rise again towards the end of the year, driven by energy base effects and the possibility of rising food prices.

This assessment of Germany’s economy highlights the ongoing challenges in key sectors, with limited growth prospects in the near future.

DAX Technical analysis

Looking at the Germany 40 CFD (DAX) 4-hour chart, we can see a clear uptrend with higher highs and higher lows and the price being well above the rising trendline (in red), showing the long-term upwards trajectory.

Support:

• The nearest support is at 19,495.0, just below the current price action. If this level is breached, the next support lies at 19,308.0.
• Further below, significant support can be seen around 18,905.0 and 18,672.6, where the price consolidated before the latest upward move.

Resistance:

• The immediate resistance is at 19,638.5, a previous high. Breaking this level would likely lead to further bullish movement, targeting higher highs.
• Beyond that, the upper bound of the green ascending channel could act as resistance in the long term.

Moving Averages (EMA 10, 50, 200):

• The price is currently trading above all three key exponential moving averages (10, 50, and 200), indicating bullish momentum.

RSI and Stochastic Oscillator:

• The RSI is at 61.10, which is in bullish territory but not yet overbought. This suggests that there is room for further upward movement before overbought conditions are reached.
• The Stochastic Oscillator is showing 80.12, which is entering overbought territory. This could indicate that a short-term pullback or consolidation might occur before the next leg higher.

Overall Trend:

• As long as the price stays above 19,495 and remains within the rising channel, the uptrend might continue. Any breach of the support levels, especially 19,495 and the trendline, might trigger a deeper pullback.

Possible Scenario 1: Bullish Continuation:

• If the DAX breaks above 19,638.5, we could see further bullish momentum with the index testing higher levels, potentially toward 19,700 or beyond. The RSI suggests there’s still room for upward movement, and the trend remains intact as long as the price stays above the support levels.
• A breakout from the rising channel could open the path for stronger gains, with the possibility of further upside in the medium term.

Possible Scenario 2: Short-term Pullback:

• With the Stochastic Oscillator indicating overbought conditions, a short-term pullback or consolidation might occur before further bullish continuation.
• If the price pulls back, the key support levels to watch are 19,495.0 and 19,308.0. Holding these levels would maintain the overall bullish structure.

Conclusion:

The DAX is in a strong uptrend, with potential for further gains as long as it stays above the key support levels. While short-term consolidation or pullbacks are possible due to overbought conditions on the stochastic, the overall structure remains bullish. Traders could watch for a breakout above 19,638.5 for confirmation of continued upside momentum.