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Germany PMI October 2019

Germany: German private sector activity remains mired in contraction in October

The composite Purchasing Managers’ Index (PMI), produced by IHS Markit, inched up from 48.5 in September (previously reported: 49.1) to 48.6 in October amid an ongoing downturn in the manufacturing sector while services sector activity increased at a multi-year soft pace. As a result, the index remained south of the neutral 50-threshold that separates contraction from expansion in the private sector.

Activity in the services sectors expanded at an over three-year low in October, reflecting weakened demand dynamics as new orders fell for the second month running; new export orders, meanwhile, dropped at the sharpest pace since the sub index was added to the survey in September 2014. Hence job creation in the services sector eased to a three-and-a-half year low. However, the downturn in the manufacturing sector was the main drag on private sector activity. Manufacturing activity suffered from declining order books, albeit at a weaker rate, and another steep drop in foreign demand. Job losses consequently intensified, with payroll numbers declining at a near-decade quick pace; this was in part related to the deteriorating outlook on future activity and as firms reduced their backlogs of work for the 12th consecutive month.

Business sentiment in the private sector soured notably to the lowest level in nearly seven years. This was mainly influenced by deteriorating services sector views: for the first time in almost seven years services providers expect business activity to fall over the next year. Meanwhile, goods-producers remained firmly pessimistic.

In terms of prices, output inflation was the weakest in more than three years, partly due to the strongest drop in manufacturing prices in almost 10 years. Input price inflation eased to the greatest extent in three and a half years due to dropping manufacturing input prices; services providers, meanwhile, continued to face higher input prices on the back of wage pressures and more expensive energy and fuel.

Commenting on the release, Phil Smith, Principal Economist at IHS Markit, stated that “hopes of a return to growth in Germany in the final quarter have been somewhat dashed by the October flash PMI numbers […] Perhaps most concerning are the signs of increasing strain on the domestic economy.”

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