German business activity bounces back as flash PMI crosses 50

Production levels rose for the first time in nine months amid widespread reports of improved material availability. In fact, lead times on manufacturing inputs shortened to the greatest extent on record in February, according to the ‘S&P Global Flash Germany PMI (purchasing managers’ index)’ report by market intelligence company S&P Global.

Manufacturers noted a continued downturn in new orders, led by a sustained sharp drop in export sales. That said, the overall rate of decline in manufacturing new orders eased for the fourth month in a row and was the weakest since May last year. The considerable easing of supply-chain pressures in February coincided with a reduction in average input costs faced by goods producers. It marked the first time in nearly two-and-a-half years that a decrease in manufacturing purchase prices has been recorded and highlighted a turnaround from the rapid rate of cost inflation recorded a year earlier.

Measured across the two sectors, input cost inflation remained above its historical series average but eased to a two-year low. Despite seeing purchasing costs fall, German manufacturers maintained a preference for higher output charges. The rate of factory gate price inflation remained historically elevated, although it eased to the weakest since February 2021. Charges set by services firms likewise rose steeply but at a slower pace, causing the overall rate of output price inflation to tick down to a 21-month low but leaving it firmly above its long-run average.

Notably, manufacturers reported a first reduction in stocks of purchases for nearly one-and-a-half years in February. Together with the shortening of supplier delivery times, this led to downward pressure on the headline manufacturing PMI, which dipped to a three-month low of 46.5 despite the return to growth in output, S&P said.

February’s flash data meanwhile indicated a further rise in private sector employment. That said, the rate of job creation was the joint-weakest over the past two years. That was despite a slight uptick in manufacturing workforce growth from January’s 23-month low. In terms of the year-ahead outlook, February data indicated a marginal improvement in firms’ expectations for future output. In the case of manufacturing, sentiment remained weaker than the historical series average (since July 2012).

Commenting on the flash PMI data, Phil Smith, economics associate director at S&P Global Market Intelligence, said: “February’s flash PMI survey showed the German private sector economy return to growth territory for the first time in eight months, alongside continued resilience in the labour market and a further slight recovery in business confidence.

“Encouragingly, the increase in business activity was broad-based by sector. However, whereas the upturn in services activity was at least partly demand-related, higher manufacturing output owed almost exclusively to a substantial easing of supply-chain bottlenecks, which merely allowed goods producers to catch up on backlogs of work. With manufacturing new orders still in contraction territory, goods producers remain only cautiously optimistic about the year-ahead outlook, and they will likely need to see demand revive for that to change.”

ALCHEMPro News Desk (NB)