The German manufacturing sector ended 2024 on a disappointing note. The latest HCOB Purchasing Managers’ Index (PMI) survey showed an accelerating decline in output and new orders, reflecting continued weakness in the German economy. The data points to a sharp decline in output levels, the worst in a long time, as the sector saw significant declines in orders from domestic and international markets. Employment rates also slowed and companies reduced their inventories to cope with the difficult economic environment.
In December, the HCOB Manufacturing PMI indicated a sharp deterioration in economic conditions, with the index reading at 42.5, reflecting a significant decline compared to previous months. These declines in output and new orders were the most pronounced in a long time. The sector saw a decline in production volumes, with a notable decline in the intermediate goods sector, which saw the largest decline in the past 14 months. New orders were also falling rapidly, reflecting overall market weakness, which negatively affected companies’ ability to achieve growth.
The aggregate data showed that the weak demand environment prompted companies to reduce their production. The survey also pointed to a significant decline in orders from abroad, indicating a severe weakness in export markets. Export orders fell significantly in December, although the decline was less severe than in the previous month. Moreover, domestic demand fell further, further complicating the situation for German factories.
In light of these challenges, German companies continuously reduced their workforce, marking the 18th consecutive month of falling employment. However, the rate of employment decline slowed slightly in December compared to previous months. This slowdown suggests that companies may have started to adjust to the current situation, but conditions remain bleak in the short term.
German manufacturers lowered their growth forecasts for 2025.
On the other hand, the data also showed a decline in inventories, as companies reduced their inventory holdings due to weak demand. Although the depletion of inventories has slowed, companies are still facing challenges in managing inventories due to the continued decline in demand for goods. To offset this decline, companies sought to improve input delivery times, which have shown an improvement in recent months.
In addition, companies continued to cut input prices for the 23rd consecutive month, reflecting ongoing economic pressures. Raw material and energy prices fell, allowing for some savings, but these price declines were not enough to stimulate demand sufficiently. December’s price decline was the weakest in four months, suggesting that the ability to cut costs has weakened further.
As for the outlook, the data showed that German manufacturers have lowered their growth forecasts for 2025. The political situation in the country continues to pose a major obstacle to economic stability, reflecting uncertainty in the economic community. Companies also highlighted the significant challenges the construction and automotive sectors face, considering them vital sectors of the German economy.
Commenting on the survey results, Dr. Cyrus de la Rubia, Chief Economist at Commerzbank Hamburg, said: “The situation in the manufacturing sector remains bleak, and it seems that the industry will not emerge from recession any time soon.” He added that forecasts indicate that the added value of industry in the fourth quarter of 2024 decreased by 0.9% compared to the previous quarter, reflecting the continued deterioration of economic conditions.
The recession in the German manufacturing sector affects intermediate and investment goods
The manufacturing sector in Germany is facing major challenges, with most sectors suffering from a continuing recession. The impact of the recession has been particularly pronounced on intermediate goods and investment goods. In December, intermediate goods were the most affected, with the PMI recording its lowest level of the year. The investment goods sector, meanwhile, has continued to stagnate throughout the year, further complicating the country’s economic situation.
De la Rubia also pointed out that these sectors are facing severe pressure due to the tariff threats imposed by the United States, which is further complicating their suffering. Despite these difficulties, some positive indicators have been recorded, such as a slight increase in labor productivity.
However, this is mainly due to companies reducing their number of employees in order to reduce costs. However, this increase in productivity has not been enough to significantly improve the overall situation of the sector. The economist explained that German companies do not expect a significant improvement in the near future, but rather expect the current situation to continue.
In addition, German companies continue to adapt to a weak demand environment, with domestic and international demand suffering from a continuous slowdown. The challenges include not only weak demand but also other issues such as rising costs of raw materials and energy. The outlook for companies has become more pessimistic.
As for the industrial sector in general, it is facing many challenges, especially in light of the ongoing recession that is affecting many key sectors. Although some improvement in productivity has been observed, this improvement cannot compensate for the decline in production.
It seems that economic challenges facing the manufacturing sector in Germany will continue to affect growth in 2025. Despite some positive indicators that have been observed, the overall situation remains bleak.
