Manufacturers Report Least Confident Outlook Since Depths of Recession at Start of 2009

July 09, 2012 /

German business confidence has deteriorated sharply since February, according to the latest Markit Business Outlook Survey.

Tim Moore, Senior Economist at survey compilers Markit, said: “June’s survey shows a worrying yet unsurprising drop in business confidence across the German private sector. Manufacturers reported the biggest pull-back in their expectations for the year ahead, and sentiment is now the worst since the recession was in full swing at the start of 2009. While a slowdown in the euro area economy was a ‘known known’ back in February, it’s how the erstwhile ‘known unknowns’ have played out in recent months that has caused expectations to drop, namely clearer signs of weakening emerging market export sales and an intensification of the euro crisis in the periphery.”

Worries about the outlook for the global economy and the ongoing euro area crisis are seen as growing threats to German private sector firms in June. This in turn has encouraged companies to rein in their job hiring and capital expenditure plans.

Just +16 percent of companies on balance forecast growth of activity over the coming year, down from the net balance of +37 percent in the previous survey conducted in February. This is slightly higher than the figure recorded in October 2011 (+12 percent). However, the composite number masks divergent sector trends. The drop in services confidence (from +38 to +20) is much more muted than that for manufacturing (from +35 to +8).

Confidence in the manufacturing sector is the lowest since January 2009, when the net balance reached -16.

Job hiring plans are lowered in June

Measured overall, the latest survey suggests a further rise in German private sector employment over the next 12 months. However, this obscures divergent sector trends.

Manufacturers reported a negative net balance in June (-2), while service providers are still upbeat (+10).

June data suggests that cost inflation is set to moderate, with the composite net balance of +23 down from +38 in February. Expectations of higher costs in the service economy (+36) contrast with forecasts of lower input prices in manufacturing (-1).

Across Europe as a whole, sentiment has dropped markedly since February, with deteriorating outlooks also seen in Italy, Spain and the UK. Companies expect weaker growth of activity, new business and revenues compared with the situation in February. Employment is set to be largely stagnant, while minimal changes in investment are anticipated.

Germany’s business sentiment; global context

A fall in business confidence is apparent at the global level. Growth of activity is expected by +37 percent of private sector firms on balance, down from +44 percent in February. However, sentiment remains above that recorded in late-2011. US firms continue to be among the most positive in their growth expectations, although optimism has dipped since the previous outlook survey. Confidence across the BRIC economies is robust overall, although differences are evident at the national level, with Brazilian and Indian companies notably more bullish than those in China and Russia.

Firms around the world report lower expectations regarding input cost inflation, following recent price
falls for many commodities. Output charges are set to rise at a weaker pace accordingly.


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