The German economy is highly dependent on exports and very successful abroad. This is clearly evident from the country’s current account surplus of 7.4 percent of GDP, with which it by far leads the way globally. The German economy’s vulnerability in the event of external interferences is the other side of the coin. Great Britain is the fourth-largest export market for German companies. As such, it is hardly surprising that the never-ending Brexit debacle is impacting negatively on the mood among German companies. China is the most important trading partner outside Europe. The slowdown in growth there that has been looming for months is now becoming clearly tangible with regard to German companies’ export prospects. ifo export expectations have accordingly plummeted. The German economy could well already be in a mini-recession. The economy as a whole, however, is not. For that the labour market, service sector, and building industry are too dynamic.
To date there has been no evidence of this on the stock market. On the contrary, the year got off to a brilliant start in the first eight weeks. The reasons for this apparent decoupling are to some extent to be found in the heavy losses in H2 2018, which were exaggerated. The low, and most recently negative yields mean stocks are of additional interest, as bond markets do not actually offer any prospects if you are expecting a positive return on your investment. At the same time, though, this reveals that the stock rally is not simply going to continue. We may well have already seen a large part of it. That said, of course a “positive” Brexit outcome and a good conclusion to the trade talks between the USA and China could result in positive momentum again.