- Prior 41.9
It’s a mild revision higher as the German manufacturing downturn eases a touch in April. But at 42.5, that’s still a very poor reading as the sector remains well in recession to start the new year. A further decline in new orders isn’t helping but at least the production slowdown is easing slightly. HCOB notes that:
“Anyone looking for encouraging economic signals from the manufacturing sector will be somewhat frustrated when
analysing the HCOB PMI figures for Germany. The headline index remains deep in recessionary territory in April, new orders
are falling even faster than before and instead of restocking inventories of purchased goods, they continue to be depleted.
This contrasts with the moderate yet discernible recovery observed in the manufacturing sectors of many other countries
worldwide, suggesting that structural factors are exerting a significant dampening effect in Germany. One such factor is the
diminishing role of China as a source of demand for German exporters, owing to lower growth in the Asian country.
Moreover, China is increasingly emerging as a competitor for German mechanical engineering companies and car
manufacturers, within China, in Germany and globally. For instance, while exports of cars from Germany to China fell by 2%
over three years up to 2023, imports of cars from China to Germany surged by 250% during the same period.
“Are we seeing a turning point for the better? At an early stage, such developments can often be recognised when the
deterioration of the situation is softening. In this sense, the weaker decline in production in April is a good sign, and the
same applies to employment, the order backlog and the slight rise in the export orders index. German industry has by no
means given up, but is instead mostly confident that it will produce more in a year’s time than it does today. On average,
however, future sentiment has been somewhat better in the past than at present. Overall, there is a possibility that the
industry may return to growth territory in the second half of the year, primarily due to a somewhat brighter global economic
environment.
“Over the past 15 months, prices for industrial inputs, including raw materials and energy, have experienced a significant
decline. As the reduction in sales prices began later and was less pronounced, the industry was able to expand its profit
margins during this period. However, this trend seems to be reversing, as selling prices fell at a similar rate to input prices in
April. In light of this development, it raises questions about whether German companies will be able to sustain the same
level of profitability seen over the past two years.”