At 50.9 in July, the seasonally adjusted Markit/BME Germany manufacturing Purchasing Managers’ Index (PMI) – designed to give a single-figure snapshot of operating conditions in the manufacturing economy – was in line with the earlier “flash” figure and down from 52.6 in the previous month. The PMI was the lowest since August 2005, and significantly below the headline reading one year earlier (56.8).
Volumes of new business at German manufacturing firms fell for the first time in nine months in July and at the steepest pace since June 2003. The drop in new work was indicative of weakening demand in both domestic and foreign markets, as clients cut back orders in response to deteriorating economic conditions. Robust rises in factory gates prices, brought on by rapid cost inflation, also served to diminish demand and encourage some clients to delay non-essential purchases.
July data signaled that new export orders fell for only the second time in the past five years, with anecdotal evidence suggesting that the strong euro continued to have a negative influence on demand from abroad (particularly from clients in the U.S.). With fewer new order volumes in the pipeline, manufacturers pointed to a moderation in output growth to its slowest in the current 35-month period of expansion. Moreover, part of July’s marginal increase in production reflected inroads into work outstanding. Decreased backlogs, together with rapidly rising input costs, led to the least marked rate of job creation since March 2006.
Growth of input buying was only marginal in July. Nevertheless, stocks of purchases rose for the first time since last April, amid efforts at some firms to guard against further input price rises, as well as shortages of raw materials at suppliers.
Input cost inflation continued its recent rapid ascent in July, fuelled by the high crude oil price and related rises in energy and metal costs. The rate of input price inflation was the third-highest since the survey began in April 1996. Faced with significant pressure on their margins, manufacturers pointed to the sharpest rise in factory gate prices since the January 2007 VAT-related series high.
Commenting on the final Markit/BME Germany manufacturing PMI survey data, Tim Moore, economist at Markit Economics, said: “In July, the headline PMI slipped to its lowest level since August 2005, as output growth slowed to near stagnation and new order volumes fell at the most
marked pace for around five years. At the same time, input costs surged higher and factory gate price inflation was close to a series record high, highlighting that the ECB is being pulled in opposite directions by weakening economic conditions and elevated inflationary pressures.”
