German economy continues to show strong rate of recovery in July

According to the report from IHS Markit, the German private sector maintained strong momentum in its recovery, with the survey’s headline index reaching a record high in July. Buoyed by strengthening demand and growing capacity pressures, firms took on staff at an unprecedented rate during the month.

On the price front, rates of increase in input cost and output charges showed a slight correction from May’s record highs, but nevertheless pointed to ongoing strong inflationary pressures as supply struggled to keep pace with demand.

July saw the headline Flash Germany PMI Composite Output Index rise from June’s 60.1 to 62.5, marking its highest reading since comparable data were first available in January 1998. The uptick in the index was driven by an ongoing rapid recovery in services activity, linked to the easing of virus containment measures and growing demand, with the respective seasonally adjusted index reaching a record high of 62.2 (services data were first collected in June 1997).

At 63.0, the Manufacturing Output Index remained in strong growth territory but slipped from June’s 65.2, amid reports from a number of companies of production levels being constrained by material shortages.

Manufacturing order books, by contrast, showed a further acceleration at the start of the third quarter, growing at the quickest rate since April. With services new business also increasing at a quicker pace in July (the second-fastest in the series history behind that seen in January 2011), the rate of growth in overall inflows of new work reached an all-time high.

Lastly, July data showed a slight easing of firms’ optimism towards year-ahead growth prospects. Expectations pulled back from a record high in June as both manufacturers and services providers reported reduced confidence about the prospect of activity rising over the next 12 months. That said, sentiment was still strongly positive by historical standards.