Germany: PMI edges higher but growth remains subdued in June
May 23, 2018
The composite Purchasing Managers’ Index (PMI) ticked up from a 20-month low of 53.4 (previously reported: 53.1) in May to 54.2 in June. Although the print marked the second-lowest figure since September 2016, the PMI—the result of a survey of over 1,000 manufacturing and services businesses across the country—remained well above the critical 50-point mark that separates expansion from contraction in Germany’s private sector.
The improvement in the headline index in June came on the back of a more robust increase in services activity, following the slowest pace of expansion in overall activity in over one and a half years in May. While the services sector showed signs of recovering growth, manufacturing activity growth continued to cool, plummeting to an 18-month low in June, largely driven by weaker output growth and slower new orders increase. Despite the sluggish increase in manufacturing order books, overall new orders edged up in June, driven by an improvement in the services sector. Growth in new manufacturing export orders continued to weaken in June, deteriorating to an over two-year low, likely on the back of the sustained strength of the euro and against the backdrop of increasing trade tensions with the United States; in 2017, the U.S. was Germany’s number one export market.
Hiring in the private sector picked up pace in June, with employment growth across both the services and manufacturing industries up in the month. Furthermore, business confidence improved slightly on the back of improved sentiment in the services sector. Confidence in the services sector outweighed slipping confidence among manufacturers, which was at a three-year low in June. In terms of prices, high input cost inflation carried over from the previous month in June, fueled by increasing labor costs and a pick-up in oil prices. In the first quarter of the year, nominal wages increased 2.7%. In turn, companies passed increased costs on to consumers through higher output prices.
Author: Jan Lammersen, Economist