Recovery in German economy loses some momentum in August - IHS Markit

According to the report from IHS Markit, business activity across Germany grew at a solid, albeit slower rate in August. The loss of momentum was confined to the service sector, where the survey showed a steeper decline in new business from abroad. Manufacturing meanwhile saw a further acceleration in growth of both output and new orders, though this failed to prevent another marked round of factory job losses.

The headline Flash Germany Composite Output Index came in at 53.7 in August, registering above the 50.0 no-change mark for the second month in a row but slipping from July’s near two-year high of 55.3. The drop in the index reflected a slower rise in service sector business activity, which was up only marginally after strong growth in July. By contrast, manufacturing production rose sharply and at the quickest rate for two-and-a-half years. Across the goods-producing sector, firms reported a boost to output from rising inflows of new work, which increased sharply for the second month in a row and showed the largest gain since December 2017. Supporting the upturn in manufacturing order book volumes was a further marked rise in export sales. Several panellists commented on higher demand from China and Turkey.

Service providers also recorded a rise in new business for the second month in a row in August. However, the rate of growth was only modest and slowed since July, resulting in a more moderate increase in overall volumes of new work across the private sector. Services firms reported a sustained drag from a reduction in new business received from international clients, which fell sharply and to a greater extent than in July. Another factor weighing on demand across the service sector was a sustained decline in employment. The rate of job shedding eased for the third month in a row and was the weakest since the current decline began in March, though it still pointed to a notable drop in workforce numbers overall. At the sector level, manufacturers recorded another marked (albeit slower) reduction in employment that was among the steepest seen over the past 11 years, while services firms noted a fractional rise in staffing levels.

Business confidence towards activity over the coming year increased slightly in August, reaching the highest overall level for two years. However, this improvement masked contrasting trends across the two monitored sectors, with stronger optimism among manufacturers (expectations here were at a two-and-a-half year high) being partly offset by a slight loss of confidence among service providers.