Brandenburg Gate in Berlin, Germany

Germany PMI October 2021

Germany: Composite PMI drops to eight-month low in October

Operating conditions in Germany’s private sector improved at a notably reduced pace at the outset of the fourth quarter. The IHS Markit Composite Purchasing Mangers’ Index (PMI) dropped to an eight-month low of 52.0 in October from September’s 55.5. However, the index remained above the neutral 50-threshold that separates improving from deteriorating business conditions over the prior month.

The softer expansion came on the back of easing momentum in both the services and manufacturing sectors. Conditions in the services sector improved at the slowest pace in six months due to spillover from supply chain issues and a softer rise in new business. Operating conditions in the manufacturing sector, meanwhile, improved at the weakest pace in nine months. Supply-side constraints and declining demand from the automotive sector weighed on production, while new orders rose at the softest pace in 16 months. Employment in the private sector continued to rise strongly, however, as firms aimed to increase operating capacity. Turning to prices, output prices across both sectors increased markedly in October, as input prices also rose strongly due to higher costs for raw materials and energy.

Commenting on October’s reading, Phil Smith, associate director at IHS Markit, added:

“Worryingly, the slowdown in growth has coincided with a re-acceleration in rates of increase in businesses’ input costs and output prices. The survey’s price gauges had looked to have peaked back in the summer, but recent surges in energy and fuel prices have helped stoke inflationary pressures, with firms raising charges to cover against higher costs in record numbers in October. October saw another robust rise in employment as firms look to try to catch up with demand and curb rising backlogs of work. Should the current trend in hiring continue, it may feed through to higher wages as workers’ bargaining power increases.”

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