Germany: export-led manufacturing upturn continues to counterbalance services weakness in February

According to the report from IHS Markit, latest data showed a further divergence in the performances of Germany’s manufacturing and service sectors in February. While coronavirus disease 2019 (COVID 19) lockdown measures continued to weigh on activity across large parts of the services economy, factories saw strong and accelerated growth due in part to surging export orders.

The positive manufacturing performance came despite a backdrop of increasing supply-side pressures. February saw record reports of delays in the delivery of inputs amid raw material shortages and squeezed transport capacity, as well an associated spike in costs.

The headline Flash Germany PMI Composite Output Index registered 51.3 in February. This was up slightly from January’s seven-month low of 50.8, though still lower than at any other time since the start of the recovery last July. The slight rise in the headline index was driven by stronger growth in manufacturing output which, having eased to the slowest for five months in January, reaccelerated to the quickest since last November. This contrasted with the fastest decline in services activity since May last year, albeit one still much slower than at the depths of the initial COVID-19 shutdowns. Inflows of new business fell across the service sector for the fifth month in a row in February, and at the quickest rate in this sequence. Surveyed businesses highlighted slow decision-making among clients as well as disruption from forced closures and travel restrictions. Manufacturing order book volumes, on the other hand, remained robust, supported by the strongest growth in factory export orders in over three years. As was the case for output and new orders, overall backlogs of work showed a modest increase in February, with the result masking varied trends at the sector level. The volume of outstanding business at services firms was down for the nineteenth month in a row, while backorders at manufacturers continued to rise steeply.