Germany WARNING: Berlin has ‘LONG WAY’ to go before manufacturing returns to growth
Germany saw its manufacturing sector inch further into recession in May, suggesting the economy is still far off from warming up again after stalling under pressure from the US-China trade war. Beijing is the most important trading partner to Berlin outside the European Union, meaning Germany is sensitive to any developments in the nation’s standoff with Washington. A weakening car industry has also proved disastrous for Germany, with the biggest automotive market in Europe being hit by slowing global demand and dented car sales. Latest figures from the IHS Markit’s flash Purchasing Managers’ Index show manufacturing fell to 44.3 from the 44.4 in April.
It marks the fifth monthly reading in a row below the 50 mark that separates growth from contraction.
The flash services PMI fell to 55.0 from 55.7 in the previous month, its first drop after four straight rises.
Markit economist Chris Williamson said the recession in the manufacturing sector might be bottoming out as the drop was only marginal.
But he added that Germany still had work to do to bring the industry back into the green.
It looks like the manufacturing downturn has passed its peak and is moving towards a period of stabilisation
Chris Williamson, Markit
Mr Williamson said: “It looks like the manufacturing downturn has passed its peak and is moving towards a period of stabilisation but there is still a long way before we return to growth in the manufacturing economy.”
Phil Smith, principal economist at IHS Markit, added: “It is manufacturers who remain the most downbeat about the outlook amid lingering global trade tensions, though the survey highlights that fears of a slowdown may have started to spread to services, where confidence is now at its joint-lowest since 2014.”
Signs that German manufacturers could soon pick up were evident in a slower contraction in output, new orders and export sales, the survey showed.
As a result, IHS Markit’s flash composite Purchasing Managers’ Index (PMI) rebounded to 52.4, a three-month high.
After nine successive years of growth, the German economy is facing headwinds from trade disputes between major trading blocks that manufacturers rely on for export growth.
This has prompted the German government to slash its growth forecast for this year for the second time in three months.
Last month, economy minister Peter Altmaier lowered the German growth forecast for 2019 to 0.5 percent.
This is down from an already lowered estimate of 1.0 percent, while initial GDP growth expectations for this year were once as high as 1.8 percent.
However, the German government is insisting momentum is expected to pick up in 2020 where growth of 1.5 percent is expected.
Germany returned to growth in January to March of this year, skirting fears of recession after weaker manufacturing figures hampered the end of 2018.
Gross domestic product (GDP) rose 0.4 percent quarter-on-quarter and 0.7 percent year-on-year calendar-adjusted, preliminary figures from the Statistics Office showed Wednesday.
It means the German economy avoided slipping into the red, after recording a contraction of 0.2 percent for July to September last year and zero growth for October to December.
A recession is defined as two or more consecutive quarters of contraction.
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