PMI: Concerns and uncertainty have affected business confidence and demand. Corporate growth forecasts fell to six-month lows and the labor market remained under pressure, though employment fell minimally and at its slowest pace in nearly a year.
In another context, the latest data showed the first rise in manufacturing output prices in nearly two years, which in turn led to a slight rise in the rate of inflation in average prices of goods and services. On the other hand, manufacturing input prices have fallen sharply and rapidly, in contrast to cost inflation, which remains strong in the services sector.
The German composite PMI issued by HCOB fell below the 50.0-point threshold unchanged for the first time in four months in April.
However, the index fell to 49.7 points, down from 51.3 points in March, indicating only a marginal rate of contraction. The services sector was the driver behind the renewed slowdown, seeing business activity decline for the first time since last November, and at the fastest rate since February 2024 (index reached 48.8 points).
Manufacturing output rose for the second consecutive month, although the growth rate has been modest and has been declining since March (the index was 51.6 points). The picture was similar for new business, with the number of new businesses received in the service sector declining, while there was a slight growth in new manufacturing orders.
Service providers commented on the impact of concerns about tariffs and associated uncertainty, with some customers reportedly delaying decisions and reining in spending amid concerns about the economic and political outlook.
Meanwhile, commodity producers saw a second consecutive monthly rise in new orders, supported by the first increase in export sales in more than three years.
German business confidence falls, inflation rebounds
April saw a significant drop in business confidence in the Eurozone’s largest economy, hitting a six-month low.
Both manufacturers and service companies cut their growth forecasts for next year, as the latter saw a sharp deterioration in their sentiment, particularly to its lowest level since September 2023.
The decline in employment in the German private sector extended for the eleventh consecutive month in April. However, labor force numbers have declined only slightly, and at the weakest rate in this sequence. Further downsizing in the manufacturing sector, where employment levels fell sharply, albeit at the slowest pace in a decade, contrasted with job creation in the services sector. In fact, the rise in employment in the services sector was the fastest since May last year.
The start of the second quarter saw a broad-based decline in business backlog, a sign of a general reduction in pressure on business capacity in the German private sector. The attrition rate remained steady by historical standards, although it fell to its weakest rate in 11 months.
Turning to prices, the latest data showed a slight rise in the inflation rate in the average prices of goods and services.
The acceleration from a four-month low in March was attributed to the first – albeit marginal – increase in factory gate fees in nearly two years.
Services companies continued to show stronger pricing power, although the recent increase in service production fees was the weakest since last October.
Manufacturers raised their prices despite reporting a sharp and accelerated drop in input costs in April. Lower commodity prices, including oil and metals, competitive pressures among suppliers, and a stronger euro were highlighted as factors that led to lower purchase prices. On the other hand, service companies recorded a sharp and slightly faster increase in operating expenses.
How important is the Services PMI for the German economy?
The Purchasing Managers’ Index (PMI) is critical to the German economy for several reasons:
Economic Index: The PMI serves as a key indicator of the health of the economy. A PMI above 50 indicates expansion, while below 50 indicates contraction. This helps gauge economic trends ahead of time.
Business Sentiment: It reflects purchasing managers’ sentiment regarding business conditions, which can influence investment decisions and economic activity.
Sector Insights: The PMI provides insights into specific sectors, such as manufacturing and services, helping policymakers and analysts understand where growth or weakness is occurring.
Investment decisions: Investors and analysts closely monitor PMI data to make informed decisions about investments in stocks, bonds and other markets.
Policy implications: Central banks and government policymakers use PMI data to inform monetary and fiscal policies, helping to proactively address economic challenges.
Labor market insights: Changes in the PMI can indicate employment trends, with expanding companies typically hiring more employees, while shrinking sectors may lead to job losses.
Stock movements: Strong PMI readings can drive up stock prices, especially in growth-related sectors such as manufacturing and services. While weak readings may lead to a decline in stock prices.
Impact on bonds: If the PMI shows an economic contraction, investors may turn to buying government bonds, leading to higher bond prices and lower yields..
Currency rates: PMI can affect the value of a currency. Positive data may strengthen the currency, while negative data indicate currency weakness.
Short Trades: Traders may use PMI data to identify short or long trading opportunities, based on their predictions about economic trends.
In general, the PMI is a vital tool for assessing economic performance and making strategic decisions in the German economy.
