German business activity growth slows to near three-and-a-half year low in October
Staff Writer |
Business activity in the German private sector grew at the slowest rate for almost three-and-a-half years in October, according to the latest PMI survey data, with both the manufacturing and service sectors showing notable losses of momentum at the start of the fourth quarter.
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The pace of job creation at German businesses remained relatively solid.
However, the survey’s more forward-looking indicators showed some downside risks to future employment growth, with order books barely rising in October and business confidence sinking to its weakest in four years.
October saw the IHS Markit Flash Germany Composite Output Index slip from 55.0 in September to 52.7, its lowest reading since May 2015.
The drop in the index, to a level below its long-run average (53.4), reflected weaker increases in both services business activity and manufacturing output.
In the case of the former, growth eased to a five-month low (although was still solid overall), while goods production expanded at a marginal rate that was the weakest in almost four years.
The slowdown in business activity growth in October was partly attributable to a weaker trend in new orders, which displayed the smallest monthly rise since June 2015.
New order growth in the service sector slowed sharply since September to the weakest since May.
Manufacturing order books, meanwhile, fell into contraction for the first time in almost four years, with a number of panellists commenting on fewer orders from clients in the car industry.
Demand from abroad also softened, which was reflected in a second straight monthly decrease in manufacturers’ new export orders.
Concerns towards trade wars, the threat of tariffs, Brexit uncertainty and wider geopolitical worries all weighed on business confidence at the start of the fourth quarter.
Expectations among firms towards the outlook for activity over the next 12 months were the lowest for four years.
Sentiment waned in the service sector to a three-year low (although remained positive overall), while manufacturers reported overall pessimism towards the outlook for the first time in four years.
Backlogs of work – the amount of orders received but not yet completed – were meanwhile broadly unchanged in October.
This followed growth in outstanding business in each of the previous 28 months.
As was the case in September, a modest rise in service sector backlogs contrasted with a reduction in the amount of work-in-hand at manufacturers.
October’s flash survey results indicated another solid round of job creation across Germany’s private sector, to continue the trend of rising employment seen since late-2013.
The rate of workforce growth pulled back further from August’s recent peak, although it remained elevated in the context of the survey’s long-run history.
Both service providers and manufacturers made notable contributions to the overall increase in private sector employment, though in the case of the goods-producing sector the rate of job creation was at its lowest in over one-and-a-half years.
On the price front, latest data indicated the continuation of strong inflationary pressures across the German private sector.
Input costs faced by businesses rose sharply during the month, with the survey’s anecdotal evidence emphasising the impact of higher oil prices on the cost of fuel and transport in general.
The increase in input prices reported by services firms was in fact the steepest seen in over seven-and-a-half years.
Accordingly, efforts made by businesses to protect profit margins led to a further sharp increase in average prices charged for goods and services in October.
However, there was a divergence in rates of inflation at the sector level.
Prices charged by services by services firms showed the steepest monthly rise since the survey began in mid-1997, while the increase in factory gate charges was the least marked since August 2017.
Finally, the IHS Markit Flash Germany Manufacturing PMI sank to a 29-month of 52.3 in October, from 53.7 in September.
As well as output, new orders and employment, the survey’s measures of stocks of purchases – which showed a renewed decline in inventories – and supplier delivery times also had a downward effect on the headline index in October. ■