Germany: Private-sector business conditions improve strongly in July
July 24, 2020
Private-sector business conditions in Germany improved markedly at the outset of the third quarter, with the IHS Markit composite Purchasing Managers’ Index (PMI) coming in at a near two-year high of 55.5 in July (June: 47.0). Consequently, the headline figure moved notably above the neutral 50-threshold that signals an overall increase compared to the prior month.
The improvement in July came primarily on the back of the services sector, where conditions improved at the strongest rate in 30 months. In the manufacturing sector, meanwhile, operating conditions signaled no change from the prior month; however, this marked the best result since December 2018. Activity in both sectors rose on the back of greater confidence among customers and the lifting of restrictive measures. In terms of new orders, manufacturers recorded the first rise in new business since September 2018, this came on the back of recovering domestic and foreign demand—particularly from China. Less positively, the private sector continued operating at less than full capacity, with backlogs of work falling for the 21st month running and employment dropping for the fifth consecutive month. Turning to prices, inflationary forces remained relatively subdued, with input and output prices declining.
Phil Smith, principal economist at IHS Markit, commented:
“One of the main concerns remains the labour market, and the ongoing cuts to manufacturing jobs in particular, with July even seeing a slight acceleration in factory job losses. That said, with backlogs among goods producers stabilising and business confidence continuing to improve, there’s some cause for encouragement that the decline in manufacturing employment will start to ease off in the coming months.”
Author: Jan Lammersen, Economist