Germany: Composite PMI crawls back up in April
At the outset of the second quarter, the IHS Markit flash composite Purchasing Managers’ Index (PMI) broke a slowdown streak, following two consecutive months of moderation. The composite PMI came in at 55.3 in April, up slightly from the prior month’s revised 55.1 (previously reported: 55.4). As a result, the PMI, which is the result of a survey of over a 1,000 manufacturing and service businesses in Germany, remained solidly above the crucial 50-point mark separating expansion from contraction in the private sector.
The result reflected an upturn in the services sector, while the manufacturing sector remained virtually unchanged from the prior month in April. Moreover, strong job growth underpinned the result, but firms’ optimism on the year ahead waned. New orders grew at the softest pace in over 18 months. This was mainly due to manufacturing new orders, which moderated for the fourth consecutive month and reached the lowest level since November 2016. In addition, growth in new export orders fell to a 16-month low. Despite softening demand, employment grew at the strongest level since the start of the year; this was primarily on the back of job growth in the services sector, as employment in the manufacturing sector expanded at the softest pace in eight months.
In terms of prices, inflationary pressures remained robust, and increased input costs led to higher output prices. Input prices rose due to higher prices for raw materials caused by supply shortages; however, firms also mentioned staff pay pressures as a factor driving up input costs. In recent wage-setting rounds, private and public-sector unions have secured salary increases above the inflation rate. A recent study from the Bundesbank found German wages outgrew wages in other Eurozone countries.
Phil Smith, Principal Economist at IHS Markit, commented that, “A further slowdown in new order growth to its weakest for over a year-and-a-half does raise some concerns. This seemed to be reflected in the survey’s measure of business confidence, which slipped further from the highs seen in 2017.”