Germany: Composite PMI stable in June thanks to a strong services sector
The IHS Markit composite Purchasing Managers’ Index (PMI) was stable at May’s revised 52.6 in June, marking a four-month high that was achieved mainly owing to a strengthening services sector. The downturn in the manufacturing sector extended into June, although lessened somewhat from the prior month. Subsequently, the headline figure remained above the neutral 50-point mark that separates expansion from contraction in Germany’s private sector, while the average reading in the second quarter picked up from the prior quarter to the highest level since Q3 2018. This suggests that economic activity in the second quarter accelerated somewhat in the quarter.
The services sector, which is mainly focused on the domestic market, continued to perform well as the data showed that operating conditions improved at a quicker pace in June compared to the prior month. On the other hand, the slump in the manufacturing sector continued in June. New business in Germany’s private sector economy returned to growth; however, the pace of expansion remained weak largely due to a marked drop in new orders in the manufacturing sector linked to frail export and automotive demand. Foreign orders placed at manufacturers dropped for the tenth month in a row. This, in turn, led to a noticeable drop in outstanding work among manufacturers while service providers recorded an increase in backlogs of work. The diverging trend between goods producers and service providers was also evident in the labor market: manufacturers cut staff for the fourth month in row, but solid job creation in the services sector kept the overall employment growth above the long-run series average.
Regarding prices, input price inflation eased among firms in both sectors; however, output price inflation increased slightly in the services sectors while it decreased in the manufacturing sector. Looking forward, sentiment regarding output growth in the next 12 months decreased to the lowest level since October 2014. Some service sector firms expect a wider economic moderation.
Commenting on the data, Trevor Balchin, Economics Director at IHS Markit, noted that “the June PMI confirms that German growth has stabilized at a moderate pace in the second quarter.” Balchin also stated that the downturn in the manufacturing sector is likely passed its peak but that “the longer-term outlook for the German private sector remains weak”.