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Decline in German business activity eases

Christian Fernsby ▼ | May 22, 2020
Business activity continued to fall across Germany’s private sector in May, latest PMI survey data from IHS Markit showed, albeit with the rate of decline easing from the record pace seen in April.
Germany factory
Firms   Germany factory
Meanwhile, despite being less pessimistic about the outlook, firms continued with further steep job cuts and discounting of prices charged for goods and services.

Topics: German

The headline Flash Germany Composite PMI Output Index recorded a reading of 31.4 in May, up sharply from April’s record low of 17.4 but still the second-lowest figure since comparable data were first compiled in 1998.

Underlying data showed similarly steep falls in manufacturing production and services business activity, though in both cases the rates of contraction were discernibly slower than in April amid the reopening of parts of the economy.

In the majority of cases lower activity was attributed to restrictions on business operating capacity and reduced demand, linked in turn to the coronavirus disease outbreak.

Indeed, firms across both monitored sectors reported sustained (albeit much slower) downturns in inflows of new business in May, with export sales showing particular weakness.

IHS Markit Germany Flash PMI A continued lack of new business led to another sharp monthly decline in backlogs of work across the German private sector in May.

As such, firms maintained a preference for lower workforce numbers, resulting in a third straight monthly decrease in employment.

The rate of decline eased from the record pace seen April, though less so than was the case for both output and new orders amid an acceleration in factory job losses to the quickest for 11 years.

Alongside reports of staff redundancies and cuts to temp and contractor numbers, there was further evidence of the use of short-time work.

Firms across Germany’s private sector remained in discounting mode in May as they looked for ways to stimulate demand, with average prices charged for goods and services falling for the third month in a row.

The decline, which was underpinned by similarly solid reductions across both monitored sectors, was slightly weaker than in April, however.

Scope for lower output prices was provided by a further fall in firms’ input costs, the third in as many months and one of the steepest seen since 2009.

The decline continued to be led by a sharp fall in manufacturing purchase prices, which panellists linked to supplier discounting and lower commodity prices.

May meanwhile saw a further payroll-related reduction in services firms’ operating expenses, with the rate of decline remaining modest overall but nevertheless accelerating to the quickest in more than a decade.

The easing of lockdown restrictions and growing hopes of a recovery in domestic and international demand saw the survey’s measure of future output improve further from March’s series record low.

That said, business sentiment remained firmly in negative territory and lower than at any point prior to March (since this particular series began in July 2012).

Manufacturers remained more downbeat about the longer-term outlook than their service sector counterparts.

Lastly, the Flash Germany Manufacturing PMI ticked up from an 11-year low of 34.5 in April to 36.8 in May.

The rise in the index which reflected slower falls in output and new orders was softened by a combination of a steeper decline in employment, a renewed fall in stocks of purchases and a less marked increase in supplier delivery times.