In the middle of the last quarter of 2024, the German manufacturing sector remained in contraction territory, according to the latest HCOB Purchasing Managers’ Index (PMI) survey. The rates of decline in both output and new orders slowed for the second month in a row but remained sharp, while there were faster declines in employment, purchasing activity and inventories. Meanwhile, weak demand and competitive pressures led to further declines in both input costs and output prices, with the latter falling at one of the fastest rates in the past 15 years. Business expectations rose slightly for the second month in a row. However, the backdrop of political and economic uncertainty meant that confidence was still low by historical standards.
The German HCOB Manufacturing PMI is a gauge of overall business conditions derived from measures of new orders, output, employment, supplier delivery times and purchase stocks. Its latest reading of 43.0 in November was unchanged from October and well below the 50.0 threshold that separates growth from contraction.
The rate of decline in manufacturing output eased to the weakest since June.
but was still sharp and slightly faster than the average seen during the current sequence of contractions in output that runs through May 2023.
German manufacturers cut production as they continued to struggle to win new business. They reported headwinds to demand from a combination of factors including the ongoing inventory-reduction cycle, political and geopolitical uncertainty and a generally difficult economic climate. New orders fell sharply, albeit at the slowest rate in six months. The latest decline in export sales was slightly faster than that seen in October, led by a particularly sharp decline in the investment goods sector.
The decline in post-production inventories
There remained a clear lack of capacity pressure across the manufacturing sector.
as evidenced by a sharp (albeit slower) decline in backlogs of work. As such, the workforce was reduced for the 17th consecutive month in November.
The rate of decline in factory employment was the second-fastest since the initial phase of the pandemic in 2020, after the rate recorded in September. Goods producers also made deeper cuts to purchasing activity and inventory levels during the penultimate month of the year.
The decline in post-production inventories was the fastest in more than three years.
while input stocks fell at one of the fastest rates since 2009. Companies reported reducing inventories not only due to lower demand and production requirements, but also to save costs and improve material availability.
Input delivery times accelerated for the 25th consecutive month in November. The rate of improvement in vendor performance was the fastest since August but remained modest overall. With reports of strong competition among suppliers, November saw a further decline in average input prices faced by German manufacturers. Cost declines were strong but the slowest in three months. Factory gate charges, on the other hand, fell to their highest since May and at one of the fastest rates since 2009.
Finally, the November survey showed a rise in business confidence about future output, with sentiment turning positive for the first time in three months. Some firms expressed hope that the economy would improve after next year’s election. However, growth expectations were well below the long-term average.
PMI data
Commenting on the PMI data, Dr Cyrus de la Rubia, chief economist at Commerzbank Hamburg, said:
“The situation for German industry looks very bleak. People are feeling the pinch with reports of companies in the manufacturing sector planning significant job cuts coming in almost daily. The PMI supports this, showing a trend of accelerating job cuts since mid-2023. So far, this has had little impact on the unemployment rate.
but it makes it even more urgent for the new federal government to take action and boost Germany’s competitiveness.
“New orders are not falling as quickly as in recent months, but that is little consolation. When we look at foreign orders alone, the situation has actually worsened. The slight acceleration in delivery times also points to weaker demand.
“Companies are more confident about their future than they have been in recent months. This could be due to the collapse of the coalition and the hope that the new government will finally achieve a real economic turnaround. “This could include things like lower energy prices and a debt brake reform. However, confidence remains very low compared to historical standards.
“The capital goods sector is being hit particularly hard at the moment, mainly due to geopolitical uncertainty according to some companies. The PMI suggests that the recession is deepening in this sector.
while the decline in the intermediate goods sector slowed slightly for the second month in a row. Overall, the slump in manufacturing looks set to continue into the new year.”
New orders (30%), output (25%), employment (20%), supplier delivery times (15%) and purchase stocks (10%). For the calculation of the PMI, the supplier delivery times index is reversed so that it moves in a similar direction to the other indicators.
