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Germany: Manufacturing continues to weigh on private sector output

Christian Fernsby ▼ | December 18, 2019
Business activity in Germany remained subdued in December, with growth across the service sector continuing to be offset by a downturn in manufacturing, according to the latest PMI data from IHS Markit.
Germany river cargo ship
German economy   The Flash Germany Composite Output Index was unchanged at 49.4 in December
Confidence towards the outlook improved, but sustained weakness in new orders continued to curb firms’ willingness to take on new staff.

Topics: Germany manufacturing private sector

On the price front, the survey showed average charges for goods and services rising at the slowest rate for over three years, which reflected both soft demand and muted underlying cost pressures.

The Flash Germany Composite Output Index was unchanged at 49.4 in December amid divergent trends at the sector level.

Though remaining only modest, growth of service sector business activity ticked up for the third month in a row to the highest since August.

By contrast, manufacturing output posted a faster decline, which helped drag down the headline IHS Markit Flash Germany Manufacturing PMI from November’s five-month high of 44.1 to 43.4.

Flash data showed the level of new orders across the German private sector falling for the sixth month in a row in December.

That said, the decrease was the least marked since July, with the survey indicating a rise in services new business for the first time in four months alongside a further moderation in the rate of decline in manufacturing order books to the weakest since January.

Goods producers likewise recorded the smallest drop in new export orders for almost a year, with the downturn in services new export business also easing.

A lack of new work to replace completed projects saw the level of outstanding business across the private sector fall again in December.

The rate of backlog depletion remained marked by historical standards, but eased for the second month in a row to the weakest since June.

A sharp and accelerated decrease in manufacturing backorders contrasted with a slower drop in outstanding business among service providers.

Employment was broadly unchanged in December, following a marginal increase during the previous month.

Whilst remaining solid by historical standards, the rate of job creation across the service sector eased slightly and was below the average for the year.

Manufacturing staff cuts meanwhile deepened, with factory employment falling at the second-fastest rate for almost ten years.

Business expectations towards output in a year’s time improved to the highest for six months in December.

This owed exclusively to stronger optimism in the service sector, where confidence recovered further from October’s near seven-year low to the highest since June.

Sentiment among manufacturers meanwhile weakened slightly, with the number of goods producers expecting output to fall over the year ahead equal to those predicting a rise.

Amid reports of strong pricing competition, the rate of inflation in average charges for goods and services eased to its weakest since August 2016.

December saw the slowest increase in service sector output prices for almost two-and-a-half years, while factor gate charges posted a further (albeit more moderate) decline.

Latest data meanwhile indicated a further easing of cost pressures across the private sector in December, with average input prices showing almost no change from the month before.

Costs continued to rise across the service sector, though even here the rate of increase was the joint-weakest since July 2017.

Manufacturers meanwhile reported the steepest drop in average purchase prices in almost four years.