March sees strong upturn in German business activity

According to the report from IHS Markit, Germany’s private sector economy had a strong finish to the opening quarter of the year, with business activity rising steeply on the back of record growth in manufacturing and a mini revival in the service sector as coronavirus disease 2019 (COVID19) lockdown measures were partially eased.

The headline Flash Germany PMI Composite Output Index sprang to a 37-month high of 56.8 in March, up from 51.1 in February. The result was driven by improved performances across both manufacturing and services. The survey’s Manufacturing Output Index registered at a record high of 68.5, reflecting widespread reports of production levels being ramped up in line with growing order books. The Services Business Activity Index meanwhile moved into growth territory for the first time since last September, registering 50.8, helped by the easing of some lockdown restrictions during the month.

Overall new business showed the steepest rise for six months in March. New work at service providers moved closer to stabilisation, falling at the slowest rate in the current six-month sequence of decline, but continued to be undermined by a lack of demand from international clients. This was in stark contrast to the picture in manufacturing, where firms reported rising sales to Asia (particularly China), Europe and the US leading to record growth in goods export orders.

Elsewhere, March’s survey highlighted increasing inflationary pressures across the German private sector, stemming from rising commodity prices and transport costs. Average input prices faced by businesses showed the steepest increase in a decade, with rates of cost inflation at 14- and 121- month highs for services firms and manufacturers respectively.

Still, manufacturers remained strongly upbeat about the year-ahead outlook for output. The degree of optimism was down slightly since February but still the third-highest on record (since July 2012). Service providers meanwhile raised their expectations for future activity, recording their highest level of confidence since March 2018.