German Private Sector Sees Fastest Falls in Output

July 26, 2012 /

The seasonally adjusted Markit Flash Germany Composite Output Index fell for the sixth month running in July, to 47.3 from 48.1 in June.

The index has posted below the 50.0 no-change value in each month since May, and the latest reading signalled the fastest pace of private sector contraction since June 2009.

Manufacturers suffered a sharper drop in business activity than service providers during July, as well as a greater loss of momentum relative to the
situation in June. The latest reduction in manufacturing production was the steepest for just over three years, while new orders received in the sector dropped at the fastest pace since April 2009.

Service providers recorded only a marginal decrease in business activity, although the rate of contraction was the joint-fastest in three years. Across the private sector as a whole, new business intakes fell at the quickest rate since June 2009, with manufacturers and service providers both recording much sharper declines than during the previous month. Lower levels of new work have been recorded in the service economy during each month since April, and the
latest reduction was the fastest for exactly three years.

Meanwhile, in the manufacturing sector, new export orders declined at the steepest rate since May 2009, which contributed to a thirteenth successive monthly fall in total new business volumes.

July data pointed to a sharp and accelerated fall in outstanding business across the German private sector. The latest overall reduction was the most
marked since November 2011, while in the manufacturing sector the rate of decline accelerated to its quickest for just over three years.
Despite lower outstanding workloads, total private

sector employment was broadly stable in July. A marked fall in manufacturing staffing levels was offset by continued jobs growth across the service economy. Whereas services employment rose for the third month running, latest data showed the sharpest fall in manufacturing jobs for two-and-ahalf years.

Input cost inflation continued its rapid change of course in July, with softer price pressures contrasting with the acceleration seen over the first
quarter of 2012. The latest rise in overall cost burdens was the slowest since November 2009, largely reflecting a rapid fall in manufacturers’ input
prices. Survey respondents widely commented on lower raw material prices, especially for steel, copper and chemicals.

German private sector firms meanwhile reduced their average output charges for the first time since August 2010, although the overall pace of decline
was only marginal. Manufacturers reported deeper rates of price discounting than service providers, with the latest fall in factory gate charges the most
marked for two-and-a-half years.

Tim Moore, Senior Economist at Markit said: “July’s survey highlights that German business conditions are far less healthy than those seen during
the first half of 2012, especially across the manufacturing sector where new export orders fell at the fastest pace for over three years. A solid overall
drop in output during July represents the worst start to any quarter since Q2 2009. Moreover, an accelerated decline in new work means that the stage could well be set for a steeper drop in GDP than the 0.2% fall recorded at the end of 2011.

“A slowdown in cost inflation to its lowest for just over two-and-a-half years was the main positive development during July. Manufacturers saw a steep reduction in their cost burdens as weaker global demand for raw materials resulted in lower prices for a range of inputs, particularly steel and chemicals.”


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