German economy continues to grow strongly in August

According to the report from IHS Markit, business activity across Germany’s private sector continued to grow strongly in August, albeit with the rate of expansion easing slightly from that seen in July. The survey meanwhile indicated an ongoing rapid recovery in employment levels, supported by increasing demand and strong business confidence towards the outlook. Inflationary pressures remained elevated, however, with a near-record rise in business costs leading to another sharp increase in average prices charged for goods and services in August.

At 60.6, the headline Flash Germany PMI Composite Output Index remained well above the 50.0 no-change threshold and thereby indicative of a strong rate of growth. The reading was down from July’s record of 62.4 but still one of highest in the series history stretching back to 1998. By sector, services activity grew at a sharp rate that was only just shy of July’s peak. Manufacturing, on the other hand, showed a more notable loss of momentum, with the sector’s Output Index slipping to 59.0, its joint-lowest in a year, and below the equivalent services index (61.5) for the first time since July 2020.

August saw employment levels across the private sector rise for the eighth successive month, as growing workloads spurred companies to expand staffing capacity. The rate of job creation was the second fastest in the series history after that seen in July, with both monitored sectors recording further sharp (albeit slightly slower) increases in workforce numbers.

Another factor supporting the rapid recovery in staffing levels was strong business confidence towards the outlook for activity. Expectations ticked up and were the second-highest since comparable data were first available in July 2012. The improvement masked varied trends at the sector level, however. While services optimism was just below June’s 21-year high, manufacturing sentiment (though still highly positive overall) sank to its lowest since October 2020, weighed down by concerns over supply shortages and associated price pressures.