Germany: Strong service sector drives uptick in composite PMI in April
March 22, 2019
The composite Purchasing Managers’ Index (PMI), produced by IHS Markit, ticked up to 52.1 in April from 51.4 in March. The latest improvement in the headline figure, which marked a two-month high, reflected ongoing strength in the services sector and a slight softening of the downturn in the manufacturing sector. Subsequently, the index remained above the neutral 50-point mark indicating expanding activity in Germany’s private sector; however, the headline figure remained below the long-run average of 53.4.
The ongoing momentum in the services sector in April was driven by strong growth in business activity and employment. Business activity expanded at the fastest pace since September 2018, accelerating for the fourth month running driven by stronger inflows of new work. This chiefly reflected a strong domestic market as foreign new orders fell at a four-year quick pace in the month. On the other hand, the downturn in the manufacturing sector continued into the second quarter of the year. Manufacturing output fell for the third month in succession as new orders continued to drop at a steep rate. This reflected the second-strongest fall in new export orders in the past decade. The decrease was driven by a struggling automotive sector and Brexit related uncertainty with “some hesitancy among UK-based clients”. Strong competition from across Europe and softer global demand also provided downward pressure on the sector. Backlogs of work in the manufacturing sector, meanwhile, fell at the steepest pace in nearly a decade. Consequently, employment numbers in the manufacturing sector were unchanged from a month earlier, when jobs were shed for the first time in three years.
Consumer price pressures, meanwhile, dropped to a 21-month low despite a pick-up in input price inflation. This was particularly the case in the services sector where higher salary costs drove an increase in operating expenses. Looking ahead, business confidence regarding output eased in April as manufacturers became the most pessimistic in nearly six-and-a-half years, while sentiment among service providers softened to a three-month low.
Commenting on the data, Phil Smith, principal economist at IHS Markit, noted that “the overall picture for Germany’s private sector has changed very little according to April’s flash data […]. The survey continues to highlight strong job creation across the service sector, which is in turn supporting wage growth and means we should see consumer demand continue to rise during the second quarter.”
Author: Jan Lammersen, Economist