Germany's manufacturing PMI fell more than expected in May

According to the report from IHS Markit, Germany’s private sector economy saw a slight pickup in growth in May, reflecting an improved performance across services. The survey pointed to a further loss of momentum in the manufacturing sector, however, as record supply delays caused disruption to production at an increasing number of businesses. Severe supply-chain bottlenecks meanwhile contributed to an intensification in inflationary pressure, with firms’ costs and output prices rising at the quickest rates on record in May.

May’s headline Germany PMI Composite Output Index came in at 56.2, up slightly from 55.8 in April. The rise in the index was driven by a return to growth in services activity after the sector stagnated at the beginning of the second quarter as measures to curb the spread of COVID-19 infections were tightened (index at 52.8 from 49.9 in April). The increase in services activity was only moderate, but nevertheless the strongest recorded since July 2020, as a number of firms reported stronger demand linked in part to the renewed easing of some lockdown restrictions during the month.

The Manufacturing Output Index meanwhile fell notably to 62.7, from 67.6 in April and further from the record high at the end of the first quarter. While the number of firms reporting improved output levels remained elevated by historical standards, there was a growing incidence of companies attributing lower output to supply disruption and associated downtime at customers.

Businesses’ expectations for activity over the next 12 months remained strongly positive in May. The degree of optimism was unchanged on the month and remained just below the record high seen at the end of the first quarter. Sectorally , confidence in manufacturing remained at its highest since the series began in July 2012 and was stronger than that recorded across services.