Germany: Composite PMI falls to a four-year low in November
At the end of the year, the composite Purchasing Mangers’ Index (PMI) dropped from a revised 52.3 in November (previously reported: 52.2) to a four year low of 52.2 in December. Nonetheless, the index remained above the 50-point mark that separates expansion from contraction in the private sector.
The drop in the index reflected softening expansions in both the manufacturing and services sectors. Activity in the manufacturing sector expanded at the weakest pace in over two-and-a-half years due to a contraction in purchasing activity and a moderation in supply chain pressures. New orders also fell for the third consecutive month. Ongoing global uncertainty and tensions led to the fourth consecutive month in which new export orders dropped in the manufacturing sector. Moreover, anecdotal evidence suggested this was due in part to softening economic momentum in China.
More positively, job creation picked up in both the manufacturing and services sectors. In the latter sector, new business orders picked up, albeit at a the weakest pace in seven months, while backlogs of work were trimmed in both sectors. Looking at price pressures, input inflation eased for the second month running in both sectors, while the manufacturing sector’s input inflation fell to an over one-year low. Meanwhile, forward-looking business confidence in the private sector dropped to an over four-year low in December.
Phil Smith, principal economist at IHS Markit, stated that “the PMI data disappointed again in December indicating the continuation of only a modest rate of underlying growth across Germany’s private sector [with] a lack of momentum heading into the New Year. It’s a stark contrast from the situation this time last year”. Phil Smith added that a downturn in hiring momentum is becoming more likely as “firms [are] now eating into backlogs of work at a faster rate”.