Germany: German private sector activity contracts again in December
Business activity in Germany’s private sector contracted again at the close of the final quarter of the year, with the composite Purchasing Managers’ Index (PMI), produced by IHS Markit, coming at 49.4 and matching the revised figure of the prior month (previously reported: 49.2). As a consequence, the headline index remained south of the neutral 50-threshold that separates contraction from expansions for the fourth month running. However, underlying data once again showed an economy cruising at two speeds.
The downturn in the manufacturing worsened in December despite new orders dropping at a softer rate; in fact, the contraction in new orders was the weakest since January. Similarly, new exports orders fell again, albeit at the softest pace in nearly a year. Fragile demand, however, saw yet another sharp drop in backlogs of work as well as further job losses. Headcounts at goods-producing firms were reduced at the quickest pace in nearly a decade. Meanwhile, business activity in the services sector rose to a four-month high in December. This came on the back the first rise in new services orders since August, while new services export orders contracted at a softer pace. Moreover, backlogs of work were reduced at a slower pace in December compared to the prior month. Job creation, furthermore, eased somewhat at the close of the fourth quarter and came in below the average for the year.
Looking ahead, business expectations rose to the highest level in six months chiefly on the back of greater optimism in the services sector. Sentiment levels among manufacturers moderated somewhat. In terms of prices, output prices rose at the weakest pace in over three years amid anecdotal evidence pointing to stiff competition. Input price inflation was also relatively muted in December owing to the steepest drop in purchase prices in nearly four years in the goods-producing sector.