- Prior 45.4
The reading is more or less the same as the initial estimate, reaffirming a slight setback for Germany’s manufacturing sector at the end of Q2. Weak demand conditions is still the main culprit in all this but at least that is helping to pin down price pressures slightly. HCOB notes that:
“Will this downturn in manufacturing never end? It will, but apparently it is going to take longer than expected. After having
seen the decline in output ease in every month since March, this trend was interrupted in June. The accelerated fall in new
orders and especially export orders indicates that we will have to wait some more months until a recovery in the
manufacturing sector can be seen. However, companies are far from throwing in the towel, as they are more optimistic about
the future than they were in May.
“The weakening demand conditions are hitting all surveyed sectors, from consumer to intermediate and investment goods.
While this is just a monthly setback and shouldn’t be overdramatized, it’s worrying that the investment goods sector, a
cornerstone of Germany’s industry, is drifting further from growth territory instead of moving closer to it.
“In the past, economic turning points have often coincided with shifts in the inventory cycle. Typically, companies that have
stockpiled supplies initially rely on these inventories during a downturn. However, they eventually need to replenish their
stock to continue production, marking the beginning of an upturn. What’s unusual now is that destocking, which started early
in 2023, is still ongoing, even though the pace of inventory depletion has already been very high in recent months compared
to previous cycles. The silver lining here is that when the rebound does come, it could be even stronger.
“The weak export orders for German companies, even as the global manufacturing sector shows a moderate recovery, is
concerning. One likely explanation is the increasing competition from China, which is ramping up its exports worldwide due
to sluggish domestic demand. This situation creates a double whammy for German exporters: fewer exports to China,
evidenced by a 14% decrease in May, and heightened competition from Chinese products, especially in emerging markets.
We’re now operating in a structurally different world compared to the 2010s. Companies must adapt to these new realities
rather than hoping for a return to the “good old days”.”