DAX: index rally continues but German manufacturing could derail run

German blue-chip companies’ stocks have rallied, helping the DAX index make continue to make steady gains, but weaker economic data and manufacturing PMI could derail its recent run.

The DAX continued its ascent on Wednesday climbing more than 50 points to 12,153 levels, with the index gaining more than 1.5% over the course of this week.

But with the German government downgrading its economic forecast and manufacturing data coming out on Thursday that will shine a light on the struggling sector, it could put an end to the index’s recent run.

German economic growth slows

The Germany economy – Europe’s largest – is quickly becoming one of the bloc’s poorest performers, with its government forecasting that 2019 will see the country record its weakest expansion in six years as it struggles to contend with myriad of headwinds like Brexit and global trade disputes.

On Wednesday, the German economy ministry slashed its GDP forecast in half to 0.5%, in what is the latest in a series of downgrades following a 2.1% estimate made a year ago.

Manufacturing sector under pressure

On Thursday, PMI data on German services and manufacturing will be released, with figures expected to reflect weaker demand for the country’s exports amid ongoing macroeconomic and political uncertainty that has dampened demand.

‘We think the risks to these forecasts are skewed to the downside,’ Bloomberg Chief European Economist Jamie Murray said. ‘That’s because, just as the worst of the storm seemed to have passed, fresh gloom has now appeared on the horizon.’

‘The manufacturing PMI plummeted in March -- to levels not seen since the euro-area’s sovereign debt crisis -- and factory orders plunged in February as well,’ he added.

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