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Stronger services growth in Germany masks deepening downturn in manufacturing

Staff Writer | February 22, 2019
Stronger growth in Germany’s service sector drove an increase in overall business activity across the eurozone’s largest member state in February, according to the latest PMI data from IHS Markit.
German workers
Europe   The IHS Markit Flash Germany Composite Output Index registered a reading of 52.7
However, the country’s outwardly-focussed manufacturing sector slipped further into contraction as export orders fell to the greatest extent for over six years.

Elsewhere, employment growth remained solid midway through the opening quarter of the year, while there was a broad-based softening of inflationary pressures.

The IHS Markit Flash Germany Composite Output Index registered a reading of 52.7 in February, up from 52.1 in January and its highest since last October.

Nevertheless, the index continued to point to one of the slowest rates of growth seen over the past five-and-a-half years.

Whereas the pace of expansion in service sector business activity accelerated to the quickest in five months, manufacturing output slipped into contraction, falling for the first time since April 2013 and at the quickest rate in over six years.

The IHS Markit Flash Germany Manufacturing PMI dropped to a 74-month low of 47.6 in February.

As well as the contraction in output, the fall in the headline manufacturing index also reflected negative contributions from the new orders, stocks of purchases and supplier delivery times components, with the latter showing the first decrease in input lead times for almost three years in February.

Latest data showed a decrease in overall inflows of new business for the second consecutive month, with the rate of decline little-changed from the modest pace recorded in January.

Weakness in demand was centred on the manufacturing sector, where order books showed the steepest fall for sixand-a-half years amid a further sharp drop in exports.

Surveyed businesses continued to report lower orders from the autos sector, whilst also highlighting a fall in demand from Asia (in particular China) linked to ongoing trade tensions and growing competitive pressures within Europe.

Backlogs of work fell only marginally in February and at the slowest rate in the current four-month sequence of decline.

A rise in outstanding business in the service sector – the first in three months – contrasted with a solid and accelerated reduction in manufacturers’ work-in-hand.

Despite pressure on capacity in the manufacturing sector continuing to ease, goods producers – like their service sector counterparts – remained in hiring mode in February.

Employment growth across the two sectors combined was at its highest since October last year, led by a steeper rise in services workforce numbers.

Owing exclusively to an improvement in optimism among service providers, overall business confidence strengthened to its highest for five months in February.

Manufacturers meanwhile remained downbeat about the outlook for business activity over the next 12 months, with expectations dipping to their lowest in over six years.

Elsewhere, the survey’s measures of input and output prices showed a general softening of inflationary pressures in February.

Average prices charged rose at the slowest rate for 19 months, with the rate of factory gate price inflation down to its lowest since November 2016.

Firms’ input prices meanwhile showed the smallest rise for just over one-and-half years, albeit with the rate of increase remaining above the historical average.

The slowdown was led by weaker inflation in manufacturing purchase prices, which anecdotal evidence linked in part to decreasing demand for inputs.

Those businesses that reported an increase in operating expenses often linked this to pay pressures.


 

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