Germany: Composite PMI records steep drop in March
March 22, 2018
The IHS Markit flash composite Purchasing Managers’ Index (PMI) fell from the prior month’s record high of 57.6 (previously reported: 57.4) to 55.4 in March, an eight-month low. Despite the drop, the PMI, which is the result of a survey of over a 1,000 manufacturing and service businesses in Germany, remained well above the crucial 50-point mark that separates expansion from contraction in the private sector.
The marked downturn in the composite PMI was broad-based, with growth in the private sector easing for the second consecutive month since January’s near seven-year high. The print, moreover, reflected the softest pace of expansion in manufacturing output in 14 months, while services activity expanded at the weakest pace since August 2017.
Although new order growth remained resilient, it expanded at the softest pace since July 2017 and was largely due to a moderation in manufacturing order books. New export orders, meanwhile, grew at the slowest rate in 14 months. In spite of the moderation, employment in the private sector expanded robustly as firms increased capacity to deal with a pick-up in backlogs of work. In terms of prices, inflation remained strong and was linked to elevated input prices that were passed on to consumers, as output prices also rose. While the average Q1 2018 composite PMI reading came in slightly below the average seen in the prior quarter, the German economy is nonetheless expected to perform robustly in the first quarter of the year.
Phil Smith, Principal Economist at IHS Markit, commented that, “Growth in Germany’s private sector has pulled back sharply since the start of the year. […] Interestingly, the survey’s anecdotal evidence also found an unusually high prevalence of staff sickness affecting business activity, to suggest that the extent of the slowdown in March might be partly due to temporary factors.”
Germany Fixed Investment Forecast
FocusEconomics Consensus Forecast panelists expect fixed investment to expand 3.9% in 2018, which is unchanged from last month’s forecast. For 2019, panelists expect fixed investment to grow 3.3%.
Author: Jan Lammersen, Economist