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German factory activity shrinks at swiftest pace since 2009

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The downturn in Germany’s critical manufacturing sector has deepened dramatically in September, dragging its wider economic activity to the lowest level since the depths of the eurozone crisis, according to a key survey of business executives.

The purchasing managers’ index for manufacturing fell to 41.4 in September, from 43.5 the previous month, slumping to its lowest level since mid-2009. The figures, produced by data firm IHS Markit, offer a closely watched snapshot into private sector activity.

The euro fell 0.4 per cent against the dollar following the release of the data, which cast fresh doubt over the health of the German economy that has been buffeted by slowing global growth and simmering trade tensions and is on the brink of a recession.

“The manufacturing numbers are simply awful. All the uncertainty around trade wars, the outlook for the car industry and Brexit are paralysing order books,” said IHS Markit’s principal economist Phil Smith.

The figures released on Monday morning also showed the economic malaise has bled into the services sector, where growth lost momentum and the PMI reading fell to a nine-month low of 52.5.

The overall composite PMI fell to 49.1 from 51.7, indicating economic contraction as it fell below the 50 mark which separates expansion from contraction. September marks the lowest reading since October 2012 and the first reading below the 50 threshold since April 2013, while the rate of decline was the steepest in almost seven years.

On its current trajectory, the German economy might not see any growth before the end of 2019, Mr Smith added.

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IHS’s data for the wider eurozone showed the bloc’s economy is close to stalling, as a slower service sector expansion adds to the long-running manufacturing woes.

The manufacturing PMI for the eurozone came in at 45.6, worse than economists polled by Reuters had expected, leaving the composite PMI at a 75-month low of 50.4.

“The eurozone economy is close to stalling as a deepening manufacturing downturn shows further signs of spreading to the services sector,” said Chris Williamson, chief business economist at IHS.

Jack Allen-Reynolds, senior Europe economist at Capital Economics, added: “with the eurozone’s manufacturing sector in the doldrums and services activity starting to lose pace, there is little reason to think that GDP growth will pick up as the European Central Bank and the consensus forecasts assume.”

French private sector economic activity grew more slowly than forecast in September, as its manufacturing sector was hit by a fall in export business.

The manufacturing PMI fell to 50.3, while services was at a four-month low of 51.6.

France’s manufacturing sector has been a comparative bright spot in Europe but has still been stuttering just above the 50 line that separates expansion from contraction. But as exports only account for around 30 per cent of the French economy, the country has held up better than Germany.

Via Financial Times

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