Germany: Private-sector business conditions deteriorate at softer pace in June
Germany’s private-sector economy continued to feel the effect of Covid-19 as business conditions deteriorated again in June, albeit at a softer pace than in May. The composite Purchasing Managers’ Index (PMI) rose from 32.3 in May to a four-month high of 45.8 in June. Consequently, the headline figure remained entrenched below the neutral 50-threshold that signals an overall decrease compared to the prior month; however, the data hinted at a quickly recovering private sector amid the gradual reopening of the economy.
The softer deterioration in business conditions came on the back of milder declines in both the services and manufacturing sectors. In the private sector as a whole, new orders fell at the softest pace since the start of the coronavirus crisis, despite lingering uncertainty, with anecdotal evidence hinting at some pent-up demand. However, demand dynamics remained weak nonetheless, causing a sharp fall in backlogs of work and job cuts, particularly in the goods-producing sector. Moreover, weak demand drove another drop in output prices amid fierce competition for work, squeezing margins. Input prices rose modestly in the service sector and continued to fall in the manufacturing sector. More positively, business expectations returned to optimistic territory for the first time in four months.
Phil Smith, principal economist at IHS Markit, commented that the data showed “increasing signs of life across the German economy. […] Firms are starting to feel a bit more bullish about the outlook, but even so there are concerns for the labour market, with the pace of factory job losses hardly letting off in June.”