Germany business activity up strongly in July, but employment continues to fall

According to the report from IHS Markit, the recovery in the German economy remained on track in July. Firms reported strong increases in both output and new orders, with business confidence also continuing to build. Nevertheless, data showed another manufacturing-led decrease in employment. 

The headline Germany Composite Output Index rose sharply again in July, recovering further from a record low in April at the height of the lockdown measures related to the coronavirus disease 2019 (COVID 19) outbreak. At 55.5, up from June’s 47.0, the index was above the 50.0 no-change threshold for the first time since February and was at its highest level overall in almost two years.

Many firms reported operating at higher capacity during the month, with activity supported by improved confidence among clients, increased travel and a general rise in new orders. A breakdown of the data by sector showed increases in activity across both manufacturing and services, with the latter recording the stronger rate of growth. Like output, overall inflows of new business across the German private sector rose solidly in July, following a downturn that began in March. On this front, however, the upturn was led by manufacturing, where data showed new orders rising for the first time since September 2018 and at the fastest rate in almost two-and-a-half years. Manufacturers also recorded a solid rise in export sales, albeit with the rate of growth being slower than that of total factory orders. 

Employment was down for the fifth month in a row in July. Though easing to the weakest in this sequence (thanks to a slight pick-up in hiring across the service sector), the overall rate of decline remained marked by historical standards amid further deep cuts to factory workforce numbers. The decline in manufacturing employment was in fact slightly quicker than in June, as 30% of goods producers reported a drop in staff numbers. 

Turning to business expectations for activity over the next 12 months, latest data showed a furtherimprovement in optimism, linked to hopes of a market recovery as COVID-19-related restrictions are potentially eased. Confidence was the jointhighest since September 2018, matching that seen at the very start of the year. By sector, expectations increased across both services and manufacturing, and remained stronger in the former.