Trading the DE40? Expert Predictions for the German Economy

The German economy is set to grow in the latter half of 2025 and in 2026, after two consecutive years of contraction. The real GDP growth of the world’s third-largest economy declined by 0.3% in 2023 and 0.2% in 2024. Analysts at Goldman Sachs expect Germany’s GDP growth to remain modest at 0.3% in 2025, while projecting that the growth would rise by 1.4% and 1.8% in 2026 and 2027, respectively. Understanding what has changed can be instrumental in making informed decisions while trading the DE40 index.

Why Did the German Economy Decline?

Following the 2022 energy crisis, Germany’s economic growth declined due to several factors.

Loss of Automotive Share

Germany’s GDP had long depended on the export industry, especially automobiles. As competition intensified in the EV segment, in a bid to meet the UN’s SDG targets for 2030, Germany lost market share to China and the US. The two largest economies used accelerated innovation and domestic production incentives, which German automakers lacked, leading to reduced export demand for the European nation.

High Energy Costs

The energy crisis following the start of Russia–Ukraine conflict sharply increased electricity and gas prices in Germany, directly affecting energy-intensive sectors such as chemicals, machinery and manufacturing. Companies’ profit margins shrank, and some even had to halt production. Weakening overall industrial output shook the backbone of the German economy. This also led to job losses, driving the unemployment rate up.

Weak Domestic Demand 

High inflation and elevated interest rates eroded household purchasing power. Sluggish consumer spending and delayed corporate investments, amid tight financial conditions, policy uncertainty and weaker global demand, weighed on the country’s growth.

Supply Chain Realignment

Germany’s export-heavy model took a hit as global trade volumes slowed while supply chains realigned. Regional production and friend-shoring strategies lowered Chinese demand and slowed US imports, further hurting the manufacturing sector.

Structural and Demographic Challenges

Germany’s attractiveness nearly halved in 2024 from its 2022 score, according to the KPMG Location Index. Long-term issues, such as an aging workforce, shortage of skilled labour and slow digitalisation, hurt productivity and innovation. Bureaucratic hurdles and a cautious investment climate made it harder for German companies to adapt to changing global trends. Foreign investors also consider excessive bureaucracy, untamed energy costs and a lack of digitisation at scale as the most significant hurdles, despite the country’s favourable location, high standard of living and public safety. 

The German Economy is Heating Up

Several key developments are shaping an improved outlook for the German economy. Its transition from stagnation to meaningful growth can create more opportunities for trading the DE40.

Major Fiscal Stimulus and Investment Push

The government has committed to a massive infrastructure and defence investment programme. An extra funding of €500 billion has been issued to support this initiative to fast-track planning and licensing.

Strengthening Domestic Demand

Policy-driven boosts to household income, stable price pressures and investment in public services may fuel consumer confidence. Analysts expect domestic consumption and investment to drive growth.

Energy and Cost Relief

Although energy costs remain elevated relative to its EU peers, easing pressures and institutional reforms may reduce network and system charges in Germany. This can boost the competitiveness of the nation’s manufacturing industry.

Potential Structural Reforms 

Plans to reduce red tape, attract more skilled labour (including targeted immigration) and diversify the economy into higher-growth tech and service sectors are gaining traction. These may create abundant opportunities in the long term, granting productivity an upside.

Trading the DE40: What to Watch

The DE40 stock index grew sharply in April 2025 due to strong corporate earnings reports, expectations of interest rate cuts by the European Central Bank (ECB), and a general trend of capital rotation into undervalued European equities from the US markets. The index had risen almost 20% YTD by the first week of November. Keeping an eye on the key factors that impact the index is crucial to making informed trading decisions:

Corporate Earnings and Sectoral Performance

The DE40 is a free-float market capitalisation-weighted index. Companies with larger market caps, adjusted for shares, have a greater influence on the index’s movements. These include Siemens, SAP, Allianz and Volkswagen. For instance, in April 2025, SAP’s Q1 earnings beat analyst expectations, pushing its stock price 10% higher in a single day and driving the DE40 up with it.

ECB Interest Rate Decision

Germany is the largest EU economy. The ECB’s monetary stance is one of the strongest drivers of the DE40. Anticipation of rate cuts can lift sentiment by lowering borrowing costs and stimulating spending. This tends to drive stock market rallies. Monetary tightening pressures equities, particularly in rate-sensitive sectors like real estate and banking.

Economic Data and Industrial Activity

Key economic indicators, such as PMI, industrial production and export orders, provide real-time insight into Germany’s economic health. A rebound in manufacturing and export demand often signals upside momentum, while contracting PMIs or soft export data dampens investor confidence, often leading to sell offs.

Energy Prices and Input Costs

Energy costs have a strong influence on manufacturing profits. Fluctuations in natural gas and electricity costs impact profit margins across German industries. Sustained relief in energy prices may support growth sectors, while price spikes could reignite inflation concerns and limit index gains.

Global Revenue Streams

Many large German companies in the DE40 generate a significant part of their revenue internationally. This makes the index highly sensitive to global trade conditions and geopolitical developments. Improvements in trade relations, stronger overseas demand and global fiscal stimulus can fuel rallies, while supply-chain disruptions or tariff risks weigh on investor sentiment.

To Sum Up

• The German economy is expected to expand moderately in 2025 and 2026, after two consecutive years of contraction.
• High energy costs, softer domestic and export demand, and structural challenges weighed on the country’s manufacturing sector.
• Domestic and global forecasts suggest that the German economy is on track for a period of sustained, though moderate growth. 
• Monitoring the ECB’s interest rate decisions, government investment in infrastructure building, corporate earnings reports, and export orders is crucial to making informed DE40 index trading decisions. 

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