Germany: Composite PMI edges up in January on stronger activity in the services sector
January 24, 2019
The composite Purchasing Managers’ Index (PMI) opened the new year on a positive note, rising from 51.6 in December—a 66-month low—to 52.1 in January. The index thus remained above the 50-point mark that separates expansion from contraction in Germany’s private sector and the improvement indicated quicker growth in private sector business activity. On a less positive note, the improvement was solely driven by the services sector, with operating conditions in the manufacturing sector worsening.
The downturn in the manufacturing sector, which registered the lowest reading in 50 months, came on the tails of a confluence of factors: the weakest increase in output since the survey began; the first drop in inflows of new business in over four years, as order books contracted for the fourth month running; softening foreign demand, particularly from China; increased uncertainty; and ongoing weakness in the automotive sector, with new car registrations continuing to contract at a marked pace in the fourth quarter.
Flagging overseas demand was not limited to the manufacturing sector: Firms in the services sector also suffered from a drop in new export orders. Weaker growth in new orders across the private sector led to a further reduction in outstanding business and anemic job creation, with payrolls increasing at the softest pace in over two years.
In terms of inflationary pressures, input costs rose at the weakest pace in nearly one-and-a-half years. This was chiefly due to softer manufacturing input price inflation as oil and steel prices fell, although companies in the services sector reported a sharper rise in operating expenses as toll charges and wage pressures increased. Output prices consequently rose at a marked pace across both sectors. Meanwhile, sentiment towards the year ahead among businesses in the private sector remained underwhelming in part due to a downbeat manufacturing sector and despite confidence rising in the services sector.
Phil Smith, principal economist at IHS Markit, noted:
“Worryingly for the outlook, the recent soft patch in demand continued into the New Year. Firms are also showing greater caution towards hiring with job creation at a 25-month low, though in a historic context these are still healthy employment figures.”
Germany Fixed Investment Forecast
FocusEconomics Consensus Forecast panelists expect fixed investment to expand 2.8% in 2019, which is unchanged from last month’s forecast. For 2020, panelists see fixed investment growing 2.6%.
Author: Jan Lammersen, Economist