Germany: Composite PMI falls into contractionary territory, reaching its lowest level in nearly seven years
While recent trade data provided some relieve for the struggling German economy, September composite Purchasing Managers’ Index (PMI) data did the opposite as the economy remains in a rollercoaster mode. The composite PMI dropped to 49.1 in September, dropping from 51.7 in August to reach the lowest value since October 2012. Consequently, the index moved south of the 50-threshold that separates contraction from expansion in the private sector and revealed that the services sector was unable to pick up the slack from the manufacturing sector.
The downturn in the manufacturing sector intensified in September, as output dropped for the eighth-month running and at an accelerated pace. Moreover, business conditions in the goods producing sector worsened at the sharpest rate since the global financial crisis. This was mainly driven by weak demand, with new orders declining at the sharpest rate in more than a decade. Demand weakness from abroad and at home resulted from ongoing global uncertainty and the darkening global economic outlook. The automotive sector remained in a tough spot. Meanwhile, business activity in the services sector slowed to a nine-month low. New business orders also declined in the services sector amid frail foreign and domestic demand. Even so, job creation continued above the long-run average. On the other hand, goods producers shed workers at the quickest pace in over nine years. As demand momentum in the German private sector slowed, backlogs of work continued to decrease at an elevated pace.
Business confidence regarding the next 12 months soured in September, descending further into pessimistic territory—manufacturers were particularly downbeat. Output price inflationary pressures rose at a soft pace as dropping prices for goods largely offset more expensive services, partly due to weak input price inflation.
Commenting on the release, Phil Smith, Principal Economist at HIS Markit, stated that “the economy is limping towards the final quarter of the year, and on its current trajectory, might not see any growth before the end of 2019. […] A first fall in services new business for over four-and-a-half years provides evidence that demand across Germany is already starting to deteriorate.”