Germany: Private-sector business conditions deteriorate at softer pace in May
The German private-sector economy remains in a tough spot due to the fallout from Covid-19, as business conditions continued to deteriorate in May, albeit at a softer pace compared to the prior month’s record-steep drop. In May, the composite Purchasing Managers’ Index (PMI) rose to 31.4 from a revised 17.4 in April (previously reported: 17.1). Consequently, the headline figure remained firmly entrenched below the neutral 50-threshold that signals an overall decrease compared to the prior month.
The softer deterioration in operating conditions reflected an uptick in both services and manufacturing business operations amid the easing of lockdown restrictions. However, the remaining government-imposed measures weighed on operating capacity, while weakened demand further dragged on the private sector; inflows of new orders and export sales remained weak. As a result, backlogs of work were reduced at a sharp rate. Moreover, businesses opted to use the short-time work scheme, and shed staff for the third month running. Turning to prices, the pandemic’s effect on demand led firms to reduce output prices in order to stimulate demand. Lower prices were also driven by lower input costs due to lower commodity prices and lower staff costs.
More positively, business sentiment picked up on the back of the gradual easing of lockdown measures and hopes of strengthening domestic and foreign demand going forward. That said, confidence remained notably pessimistic
Phil Smith, principal economist at IHS Markit, commented: “Any hopes of a swift pick-up in activity across the German economy following the easing of lockdown restrictions have been somewhat dashed by May’s flash PMI survey […] we are still a long way off business as usual and the path to recovery remains unclear.”