DAX dips as confidence in German economy wavers

Inflation and supply chain issues weigh on Europe’s largest economy

The DAX Index – an index of the top 40 companies listed on the Frankfurt Stock Exchange – traded down on Tuesday, and looked set for its third consecutive fall as confidence in the German economy continued to slide. 

ZEW Institute

The ZEW Institute’s future expectations index also fell for the fifth month in a row in October to 22.3, having stood at 26.5 in September. The reading is the lowest since last spring. 

The perception of current conditions by investors also slumped, falling from 31.9 to 21.6 between September and October to its lowest level since July. 

In addition to the ravages wrought by the Covid-19 crisis, Europe’s largest economy has had to contend with the ongoing shortage of semiconductor chips. The global phenomenon has affected the nation’s substantial auto industry because vehicles, despite being almost complete, lack key components in their internal computers and so cannot be delivered. 

The energy supply crisis that has gripped parts of the northern hemisphere in recent weeks has also weighed on investor sentiment. Last week, a shortage of coal triggered by increased global demand forced the Bergkamen-A electricity-producing power plant in western Germany to shut down.

The rise in fossil fuel prices has coincided with a fall in the energy generation capacity of some forms of renewable energy. Wind power generation has been the most egregious under-performer: only around 43% of German power consumption between January and September came from renewable sources, instead of the 48% seen a year earlier. 

Commenting on the report, ZEW president Achim Wambach said the economic outlook had  “dimmed noticeably”, and attributed the drop primarily to “the persisting supply bottlenecks for raw materials and intermediate products.” 

He added: “Financial market experts expect profits to go down, especially in export-oriented sectors such as vehicle manufacturing and chemicals and pharmaceuticals."

Exports and inflation

In August, German exports fell for the first time since the initial plunge at the start of the Covid-19 crisis in 2020. 

Inflation is another major factor affecting both the German economy and investor sentiment. According to official data, inflation in Germany rose to 4.1% in September, its highest level for 29 years. 

The collapse of the more business-friendly CDU/CSU party in last month’s federal election can also be said to be a factor. The SPD-led coalition which is expected to emerge from talks and govern the country has vowed to introduce taxes on financial transactions, a form of wealth taxes and to tackle excessive speculation. 

By 15:00, the DAX traded 0.48% lower at 15,215, down 3.5% in the past month.

Further reading: Asian stocks fall as Evergrande anxiety returns

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