Germany’s DAX index is set to drive a period of European market outperformance in 2025, according to analysts at BCA Research. This forecast comes as part of a broader outlook for European equities, which are anticipated to experience a challenging start to the year but will likely recover as economic conditions stabilize.
BCA Research expects European stocks to face headwinds in the first half of 2025, primarily due to weak growth and trade uncertainties. Recessionary pressures, compounded by global economic concerns such as weak demand from China and potential U.S.-European trade tensions, are predicted to impact corporate earnings and valuations across the region. Analysts project a decline of 20-30% in European stocks during this period, driven by contracting profit margins and a slowdown in cyclical sectors.
However, BCA sees Germany’s DAX index as a key factor in the expected recovery. The country’s economic landscape is set to benefit from several factors, including stronger corporate balance sheets, improving domestic demand, and the potential for tax reforms under the leadership of new Chancellor Friedrich Merz. These structural changes, alongside easing austerity measures in peripheral European economies, are likely to boost Germany’s exports and reduce its reliance on the volatile Chinese market.
The anticipated rebound in European equities is further supported by expected policy adjustments from the European Central Bank (ECB). Analysts predict significant interest rate cuts from the ECB in the second half of 2025, which could stimulate economic growth across the region.
In addition, the expected recovery in European markets is set to coincide with a moderation of the U.S. dollar’s strength, which has been a major headwind for the euro and European equities in recent years. As European stocks regain momentum, analysts foresee a gradual narrowing of the valuation gap between European and U.S. equities.
Currently, European markets trade at a significant discount compared to their American counterparts, a disparity that BCA Research attributes to both cyclical and structural factors over the past decade. The anticipated reversal of these trends presents a long-term opportunity for investors, particularly in German and other European equities.
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