- Prior 54.1
- Composite PMI 48.5 vs 48.3 prelim
- Prior 50.6
It's a mild revision higher to the initial estimate but it isn't of much comfort as the manufacturing sector in Germany slumped by even more. That is leading to a contraction in the economy in July as demand conditions are seen worsening further. HCOB notes that:
"There is some fear among services companies that employees might be twiddling their thumbs soon, as incoming business deteriorated considerably in July. This corresponds to a plunge in new export business and a drop in backlogs of work. Firms have reacted by hiring new staff at a much slower pace than they did in previous months. We expect employment growth to come to a halt over the next few months, though companies will stop short of axing jobs on a great scale.
"Currently, activity in the service sector is still benefitting from the good dynamics of the first half of the year. However, growth is clearly petering out on the back of recessionary trends in the manufacturing sector. The risk of the whole economy falling into a recession in the second half of the year has clearly increased.
"Optimism is dwindling fast, with services companies no longer expecting activity to be higher in twelve months from now.
"While manufacturers are enjoying the fastest cuts in input prices in more than a decade, services companies are still faced with rapidly increasing costs. Fortunately for them, they are still able to pass at least part of the burden of higher costs through to customers. The ECB obviously has a different perspective and will be worried to see these numbers. They are all the more problematic as Germany’s services output price inflation even went back up in July, according to the PMI survey, putting the effectiveness of the tough monetary stance into question."
