German Private Sector Output Falls at Faster Rate During August
At 47.0 in August, down from 47.5 during July, the seasonally adjusted Markit Flash Germany Composite Output Index posted below the 50.0 no-change value for the fourth consecutive month.
The latest reading was much weaker than the longterm survey average (53.0) and signalled the steepest rate of private sector output contraction since June 2009. A sharper reduction in overall business activity reflected a return to falling output in the service economy.
While the rate of decline in service sector activity was relatively modest, it was nonetheless the fastest for just over three years. Manufacturers pointed to a steeper fall in output than service providers during August, but the rate of contraction in the sector eased since the previous month.
August data pointed to a steep and accelerated reduction in new business received by private sector companies across Germany. The overall pace of decline was the most marked since June 2009, reflecting sharp decreases in both the manufacturing and service sectors.
Anecdotal evidence attributed the fall in new work to unfavourable underlying economic conditions and, in some cases, a continued weakening in demand from Southern Europe. In the manufacturing sector, new export orders dropped
rapidly in August, and the rate of contraction reached its fastest since April 2009.
Lower workloads in turn resulted in another substantial fall in purchasing activity at manufacturing firms, alongside reductions in inventory levels.
Backlogs of work continued to decrease in the German private sector during August, thereby extending the current period of contraction to 14 months. Lower levels of unfinished work were broad-based across the manufacturing and service sectors, with respondents mostly citing a lack of pressure on operating capacity at their units.
Weaker demand contributed to a fifth successive monthly fall in manufacturing employment levels. However, service providers added to their staffing numbers in August, which underpinned a marginal overall expansion of workforce numbers in the German private sector. Although service firms are downbeat about their year-ahead prospects for business activity, the degree of negative sentiment was relatively moderate.
In conjunction with Overall input cost inflation was only marginal during August. However, there were again divergent trends between the manufacturing and service sectors. Latest data pointed to a solid rise in cost burdens in the service economy, albeit the lowest rate of inflation for two years.
Manufacturers highlighted a third successive monthly reduction in their input prices. That said, the rate of decline was much less marked than that recorded in July, with some firms citing renewed upward pressure from steel and oil-related inputs.
Meanwhile, prices charged by German private sector firms were broadly unchanged in August. Latest data indicated that a marginal rise in average tariffs across the service economy was offset by another modest decrease in manufacturers’ output prices.
Commenting on the Markit Flash Germany PMI survey data, Tim Moore, Senior Economist at Markit said: “August PMI data highlights the weakest German
private sector performance for over three years, with a return to falling services activity offsetting an easing in the manufacturing downturn.
“Overall, the latest survey indicates that the German economy is sailing into greater headwinds as the third quarter progresses, with PMI readings slipping deeper into territory normally associated with GDP contractions. Outside of the 2008/09 downturn, the German composite index hasn’t been this low for this long since the time of the 2003 recession.
“Perhaps the most worrying but least surprising development in August was the accelerated reduction in new work from abroad, as manufacturers posted the
steepest rate of export contraction since April 2009.”