German manufacturing shrinks

Thu, Mar 22, 2012, 00:00

Germany's manufacturing sector shrank for the first time this year in March on the back of falling new orders, raising concern over its resilience to the euro zone crisis and overshadowing optimism at the approval of Greece's bailout package.

Markit's manufacturing Purchasing Managers Index (PMI) fell to 48.1 from 50.2 the previous month, a survey showed today, undershooting predictions of 51.0 and sliding below the 50 mark threshold that separates contraction from expansion.

It was the lowest reading since November's 47.9.

New orders in the manufacturing sector also fell at the fastest pace this year, dropping to 46.2 from 48.1.

"While Germany may avoid a recession, its growth is by no means robust. It's just scraping through," said Chris Williamson, an economist at Markit, which compiles the survey.

The PMI's composite index, a combined measure of services and industry, fell to a three-month low of 51.4 from 53.2, but held above the 50-threshold that separates expansion from contraction.

The results took the shine off 2012 growth forecasts from Germany's RWI economic institute yesterday, which doubled to 1.0 from 0.6 in December, as the global economic outlook and the stability of the financial markets improved last month after the second Greek bailout package was sealed.

Germany's export-driven economy contracted in the last quarter of 2011 as the debt crisis spread from Greece to key euro zone trading partners.

Economists expect the economy to stagnate in the first quarter of 2012 but sidestep the two successive quarters of contraction that define a recession, before recovering from the second quarter onwards.

Recent surveys have pointed to a positive economic outlook for Germany, including the closely watched Ifo business sentiment survey, which rose to its strongest in seven months in February.

But a fall in new orders for manufacturing, a sub-index which has been contracting since July 2011, could deal a blow to this optimism if demand fails to pick up.

"There are rays of hope and companies' outlooks aren't universally bleak. What is going to drive a turnaround in new orders is global demand," Mr Williamson said.

"We have had a run of relatively good news from the euro zone with the Greek bailout package, and if that's not driving demand I can't see what will."

Reuters