German business activity contracts through Q3 - PMI

German private sector business activity remained in contraction territory in the third quarter, according to Friday's HCOB flash composite purchasing managers’ index (PMI) output index.

It showed a minor improvement in September, rising to 46.2 from August's 39-month low of 44.6, but below estimates of 47.2.

The manufacturing sector suffered the most, dropping its output index to a 40-month low of 39.2, marking the steepest production fall since May 2020. On the other hand, services activity contracted marginally, with an index score of 49.8.

“The German services PMI stopped its slump and nudged up near 50 in September,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. “However, in terms of growth, activity remained broadly flat following the decline recorded in August.

A consistent drop in demand for goods and services was driving the downturn, as total new work inflows saw a decline for the fifth month in a row in September.

The contraction rate was the most rapid since the initial outbreak of the Covid-19 pandemic in early 2020.

The services and manufacturing sectors witnessed considerable drops in new orders, especially from foreign clients. It’s no secret that the German manufacturing sector has been going through the wringer lately,” de la Rubia said.

“The HCOB composite PMI confirms our view that Germany has entered once again into contraction during the current quarter, after the downturn at the tail end of 2022 and early 2023,” said Dr de la Rubia. “Our nowcast points to a rather deep GDP slump of one per cent compared to the quarter before.

“Having said this, some important sub-indicators like new business and backlogs of work, which appear to be reaching a bottom, offer hope of an end to this slump as we hit the new year.”

Reporting by Josh White for Sharecast.com.