Germany’s private sector economy returned to contraction at the beginning of the third quarter, under the weight of the deterioration and the latest HCOB “flash” PMI survey prepared by S&P Global showed. There was also further weakness in the labor market amid a widespread decline in employment. On the inflation front, the latest data showed that the rate of increase in service sector output prices declined to its lowest levels since April 2021. At the same time, input costs and output prices in the manufacturing sector continued to decline, but at slower rates.
July saw the headline HCOB Flash Germany composite PMI output index move below the 50.0 threshold with no change to the index. For the first time in four months. At 48.7, down from 50.4 in June, the latest reading indicated a modest rate of decline in private sector and business activity. The return to deflation reflects a combination of a deeper decline in manufacturing output and a slower decline in service business growth. Factory production levels fell sharply and at the fastest rate in nine months (index at 42.2). While growth in services activity declined at a modest pace, the weakest since March and slightly below the long-term average
(Index at 52.0) Meanwhile, total new business inflows across Germany’s private sector fell for the second straight month in July. Once again, this decline is due exclusively to weak industrial new orders, which recorded the largest contraction rate in three years and months. New business in the services sector rose for the fourth month in a row, although the growth rate was the weakest in this regard
sequence amid a renewed decline in new work from non-local clients.
Backlog in both sectors continued to decline during July. Furthermore, the extent of the overall decline in business was the most pronounced since February with attrition rates accelerating in both sectors monitored. With companies completing orders at a faster rate than those they received, their hiring capacity was reduced for the second month in a year. The decline in hiring continued to be led by the manufacturing sector, where workforce numbers hit an all-time high.
The biggest decline since March, but July also saw services companies join their goods-producing counterparts in cutting employment levels to end a six-month streak of job creation in the sector. The overall decline in employment was the largest since then
August 2020: With regard to prices, preliminary data for July showed a modest rise in the rate of input cost inflation to its highest level in three months. Operating expenses in the services sector rose at a slightly faster pace, while they were affected by the decline in purchasing costs in the manufacturing sector, while they declined, with the rate of decline slowing for the seventh time in the past eight months to the weakest in a year and a half. However, the overall rate of cost inflation remained slightly below its long-run average.
Average prices charged by companies in Germany also rose slightly below the historical trend for the chain. In contrast to costs, inflation has fallen since June, reflecting the slowest rise in service sector output prices in more than three years. Factory gate charges continued to decline at the beginning of the third quarter, but the rate of decline was the weakest since then from January and slower than the average over the current 14-month discount sequence.
The significant decline in manufacturing production
Commenting on the flash PMI data, Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: This appears to be a serious problem. The German economy has fallen back into contraction territory, affected by a sharp and severe decline
The significant decline in manufacturing production. The hope that this sector will benefit from a better global economic climate is disappearing into thin air. With the composite PMI now below 50, real-time GDP forecasts predict that economic output will contract even further.
0.4% in the third quarter compared to the second quarter. While it is still early and many data points are yet to come, the second half of the year is starting on a very weak note. Improvement does not appear to be on the horizon in the manufacturing sector as new orders fell at the fastest rate in three months. This is aligned with the accelerated decline in the backlog of orders and the volume of materials purchased. Weakness in the manufacturing sector appears to persist, with a potential recovery not expected until at least the fall of this year.
“The biggest problem in the Chamber is the various structural issues. With regard to the manufacturing sector, the main structural challenges include labor market shortages, the backlog of infrastructure investment, lack of digitalisation, and, relatively speaking, rising energy prices. However, the most important factor affecting
Global market share of German automobile and machinery producers compared to competitors in China. Unfortunately, this problem is here to be eliminated.
“The economic contraction in Germany is somewhat mitigated by the service sector, which is still growing. However, the situation there is far from comfortable. Even companies have cut the number of jobs, and premium businesses have declined faster than in the previous month. Bonus However
The Purchasing Managers’ Index (PMI) survey methodology has earned a reputation for providing the best
A potentially up-to-date indicator of what is actually happening in a private sector economy by tracking variables such as sales, employment, inventories and prices. The indicators are widely used by companies, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries (including the European Central Bank) use the data to help set interest rates
decisions. Purchasing Managers’ Index (PMI) surveys are the first indicators of economic conditions published each month and are therefore available long before comparable data produced by government bodies. S&P Global does not review underlying survey data after initial publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series. Historical data on base numbers (unadjusted), and seasonally adjusted series published for the first time
