Germany remains "sick man of Europe". Manufacturing, services decline

24 February 2024 - 13:00

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The latest PMI data confirmed that Germany is in a deep crisis, with the manufacturing sector worsening.

Germany remains "sick man of Europe". Manufacturing, services decline

The manufacturing sector disaster in Germany continues, while the Eurozone sends signs of recovery.

This is the picture that emerged from the latest surveys of composite, manufacturing, and services. The German nation confirms itself as the "sick man of Europe", with a crisis in its key sector, the one that made it the driving force of the continent, which shows no signs of improving.

The German economic recession worsened in February and a slight improvement in service activity failed to offset a surprisingly sharp deterioration in the manufacturing sector, as highlighted by the preliminary PMI survey.

The data therefore highlighted the growing divergence between Germany and the rest of the region and comes against a backdrop of growing concerns about the country’s economic performance, which is weighed down by the prolonged weakness of its manufacturing sector. The Government on Wednesday also cut its growth forecast for this year to just 0.2%, following a contraction in 2023.

The German crisis is worsening

The German manufacturing recession unexpectedly deepened in February, with activity slowing at a faster pace as domestic and foreign demand fell.

S&P Global’s purchasing managers’ index for the country’s industrial sector dropped to 42.3 from 45.5 the previous month, well below any estimate by economists in a Bloomberg survey. Thanks to improving conditions in the service sector, overall economic activity decreased only from 47 to 46.1.

“After a glimmer of hope in recent months, German industry is now in a gloomy climate”, said Tariq Kamal Chaudhry, an economist at Hamburg Commercial Bank. The data revealed “a decline in production, along with a collapse in new orders both domestically and internationally”.

Falling input prices and shorter lead times, which at first glance seem positive in light of price pressure and the Red Sea crisis, actually underline the chronic weakness in demand, Chaudry pointed out.

"Germany is acting as a drag on Eurozone growth", said Norman Liebke, an economist at Hamburg Commercial Bank. "While France is recovering more strongly in both services and manufacturing, Germany is lagging behind".

The services PMI index instead rose to 48.2 in February from 47.7 the previous month, beating analysts’ expectations of 48.0, but still in contraction territory.

Eurozone improving

Private sector activity in the Eurozone hit an eight-month high, with fairly stable services and data across much of the region offsetting an increasingly dire situation in the German manufacturing sector.

The numbers showed that S&P Global’s purchasing managers’ index rose to 48.9 in February, stronger than the 48.4 economists expected and closest to the 50 level that marks expansion. All thanks to the services, which unexpectedly stopped contracting after six months.

Meanwhile, the manufacturing sector has seen a worsening of the slowdown, for which Germany is responsible.

There is a glimmer of hope as the Eurozone heads towards recovery. This is particularly evident in the service sector,” said Norman Liebke, an economist at Hamburg Commercial Bank.

Optimism improved and companies added headcount at the fastest pace since July, a sign they expect the momentum to continue. The employment index rose to 51.2 from 50.1.

The Services PMI jumped to 50.0 from 48.4 in January, far exceeding survey expectations for 48.8.

Original article published on Italy 2024-02-22 11:27:38. Original title: Germania sempre più “malato d’Europa”. L’industria peggiora, i dati

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