German manufacturing slips deeper into recession, PMI at 80-month low

Germany’s manufacturing industry slipped deeper into recession in the first quarter of 2018 as worries about Brexit, trade tensions and the weakening global economy hit sales.

An index of manufacturing activity in Europe’s biggest economy dropped to its lowest point since July 2012 when the Eurozone crisis was at its peak.

The IHS Markit/BME PMI index fell sharply in March to 44.1 from 47.6 in February. A score below 50 indicates contraction and the March reading was worse than an earlier estimate.

German manufacturing, which makes up about a fifth of the economy, has been contracting for three quarters. The latest figures showed output, new orders and export sales shrinking. Payroll numbers fell for the first time in three years.

Phil Smith, principal economist at IHS Markit, said: "The final print of March's manufacturing PMI numbers makes for uncomfortable reading, with the downturn in the sector even worse than initially suggested. Both total new orders and export sales are now falling at rates not seen since the global financial crisis, with more and more firms reporting lower demand linked to Brexit and trade uncertainty, troubles in the automotive industry and generally softer global demand.”

Smith said growing job numbers had been the sector’s bright spot amid deepening gloom but that employment had started to fall as some firms cancelled temporary contracts.

The cost of materials used in manufacturing barely rose, though this reflected reduced purchasing by German manufacturers. Charges for manufactured goods increased at the slowest pace since November 2016.

The manufacturing slowdown has left Germany’s wider economy teetering on the brink of recession. The country’s carmakers have been hit by a slowing Chinese economy and the need to strengthen emissions tests.