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Germany PMI February 2018

Germany: Composite PMI falls from seven year-high but remains in expansionary territory in February

The IHS Markit flash composite Purchasing Managers’ Index (PMI) dropped from the prior month’s record high of 59.0 (previously reported: 58.8) to 57.4 in February. Despite the moderation, the PMI—the result of a survey of over a 1,000 manufacturing and service businesses in Germany—remained well-anchored above the crucial 50-point mark separating expansion from contraction in the private sector.

While February’s print marked a three-month low, growth in the manufacturing and service sectors remains robust as the strong economic momentum of last year seemingly spilled over into 2018. The print reflected a slowdown in both the manufacturing and service sectors although activity did still expand; the average pace of expansion in Q1 2018 thus far has been above that of Q4 2017.

An increase in new orders was recorded for the 38th month in a row although the expansion was lower than in the prior month. Manufacturing new export orders grew at the slowest pace in a year. Due to a slower climb in new orders, the increase in backlogs of work was also lower, but private sector employment increased nonetheless across both the manufacturing and the service sectors. Job creation was linked to solid business confidence levels among firms, which hit a multi-year high. Looking at prices, marked output price inflation was linked to higher input costs as the price for raw materials continued to rise.

Phil Smith, Principal Economist at IHS Markit, commented that, “Encouragingly, the survey found that business confidence towards performance in the next 12 months spiked higher (…). But (…) confidence among manufactures waned amid a slowdown in new export order growth (…) and ongoing supply-chain disruptions.”

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