• Prior 43.2

The German manufacturing recession is seen worsening in June, as both output and new orders are falling at their fastest pace in eight months. Adding to that, employment growth is coming close to stalling and that points to potentially more serious problems despite falling prices. HCOB notes that:

"Conditions in the manufacturing sector have undoubtedly worsened, but this is not a crash and we may not see anything of the likes. The HCOB PMI for the manufacturing sector does show that demand for industrial goods is falling sharply and production is declining significantly, especially for intermediate and consumer goods and, for the first time in five months, for capital goods. However, we would not call it a collapse. It’s important to remember that new orders began falling from very high levels and manufacturers haven’t resorted to job cuts yet, the increase in employment merely slowed in June. A look at the toll index recorded by Destatis, which correlates somewhat with industrial production and where data are available until May, supports the view that we are not heading towards the abyss.

"Despite the decline in demand that began early last year, companies only started to cut their selling prices in June, according to the PMI data, while input prices have already been falling for several months. The most important reason for this certain serenity observed among companies is likely to be the order backlog, which, although declining, is still significantly higher than the historical average according to Destatis data.

"The low headline PMI figure is also somewhat put into perspective by the fact that improved delivery times are negatively included in the overall index as a sign of weak demand. However, the fact is that while delivery times have fallen significantly, this follows a period of unprecedented delays in recent years meaning that we are apparently not back to normal yet, confirmed for example by statistics of the EU commission on material shortages of companies.

"Overall, the PMI data for manufacturing show that a recession in this sector, which was still expanding in the first quarter according to GDP statistics, has become much more likely. However, the signs are still pointing more to a mild downturn and the survey results therefore by no means suggest panic among companies."