Germany’s private sector contracts again in August

Germany’s private sector continued to contract in August, with business activity declining for the second consecutive month, according to the latest HCOB Flash PMI survey by S&P Global.

The Composite PMI Output Index dropped to 48.5, down from 49.1 in July, signalling a worsening economic outlook. Employment in the private sector fell at the fastest rate in four years, reflecting declining optimism among businesses regarding future growth prospects.

Manufacturing remained a significant drag on the economy, with production falling sharply, while the service sector also showed signs of weakening, with growth slowing to its lowest pace since March.

New orders across both sectors dropped for the third month in a row, driven by reduced foreign demand and customer hesitancy, particularly in the construction sector.

Price pressures were mixed, with service sector costs easing while manufacturing prices nearly stabilised after a prolonged decline. Despite these challenges, output prices rose at the fastest rate in six months.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that the manufacturing recession deepened, with new orders plummeting due to a sharp drop in foreign demand. He also expressed concern over the spillover effects on the services sector and warned that Germany might face a second consecutive quarter of negative growth, increasing the likelihood of a recession.

“The anticipated interest rate cuts by the ECB, expected by most analysts, might lift spirits a little, but it’s clear that the overall mood remains poor.” de la Rubia said.