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Germany’s private sector sees modest growth in April

Christian Fernsby |
Despite improving slightly, growth of Germany’s private sector economy remained subdued at the start of the second quarter of the year, weighed down by an export-led contraction in goods production.

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The service sector, on the other hand, remained resilient, recording strong growth in both business activity and employment.

The IHS Markit Flash Germany Composite Output Index ticked up from a 69-month low of 51.4 in March to 52.1 in April.

That said, the index remained below its long-run average of 53.4.

Growth of service sector business activity was strong in April, having accelerated for the fourth month in a row to the quickest since September last year.

Manufacturing output, however, fell markedly and for the third month in a row, albeit with the rate of contraction easing since March.

Trends in new business followed a similar pattern, with a strong and accelerated rise in new work at service providers contrasting with a further steep (albeit slightly slower) decrease in manufacturing order books.

With the rate of decline in manufacturing new orders being much steeper than of factory output, it meant that overall inflows of new business fell slightly and for a fourth straight month.

The drop in manufacturing order books in April was led by a further steep decline in new export orders, which fell at the second-fastest rate in the past ten years.

Anecdotal evidence highlighted weak demand across the automotive sector in particular, whilst also suggesting some hesitancy among UKbased clients.

Inflows of new work from abroad also fell across the service sector.

Moreover, with the rate of decline accelerating since March, it meant that overall new export business posted the steepest decline since comparable data covering both manufacturing and services were first available in September 2014.

Latest data also indicated a steeper fall in backlogs of work in April – the most marked since June 2013.

Outstanding business in the service sector rose only slightly and at the slowest rate in three months, while work-in-hand at manufacturers showed the steepest contraction for almost a decade.

Driven by a pick-up in job creation across the service sector, April saw the rate of employment growth in Germany’s private sector regain some momentum after having eased to a 27-month low in March.

Staffing numbers in the manufacturing sector were meanwhile unchanged following the first monthly decrease in three years at the end of the opening quarter.

Business confidence towards the year-ahead outlook for output weakened in April, with the overall degree of optimism only slightly above last December’s 50-month low.

Though remaining strongly positive overall, sentiment in the service sector eased to the weakest since January, while manufacturers were their most pessimistic since November 2012.

Elsewhere, latest data showed a slight slowdown in the rate of inflation in average prices charged for goods and services to a 21-month low.

There were slower increases in both monitored sectors, though the latest rise in service sector output charges was still sharp overall and among the fastest seen since the series began in 1997.

Input price inflation meanwhile ticked up, rebounding from a 29-month low in March thanks to a broad-based increase in cost pressures.

That said, the latest rise in manufacturing purchase prices was still the second-weakest seen in over two-and-a-half years.

This compared with a steep increase in operating expenses across the service sector that was linked in large part to rising wages.

Finally, April data indicated the most marked improvement in supplier delivery times faced by German manufacturers since May 2009.

Despite this, and a faster fall in stocks of purchases, the IHS Markit Flash Germany Manufacturing PMI ticked up to 44.5 from an 80-month low of 44.1 in March.

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