Germany's private sector shrinks

Thu, Aug 23, 2012, 01:00

Germany's private sector shrank for the fourth month running in August, surveys showed, suggesting Europe's powerhouse economy is feeling the headwinds from the euro zone crisis as orders from abroad for its goods fell at the fastest rate in more than three years.

Markit's composite Purchasing Managers Index (PMI), measuring activity in both manufacturing and services, slipped to 47.0 in August, according to a flash estimate released today, below the 50 mark that separates growth from contraction that it crossed in May.

That took the index to a 38-month low reached in early 2009 when Germany, Europe's largest economy, battled with the peak of the global financial crisis, and came as the services sector fell back into contraction.

Both the manufacturing and services indices are now back in shrinking territory and Markit's Rob Dobson said that did not bode well for the currency region as a whole.

"What people were hoping was that ongoing German economic strength would aid growth and recovery in the broader euro zone economy. Given these numbers, it looks very much as though a blow is being dealt to that," Mr Dobson said. "What we've now seen over most of 2012 is that conditions in Germany and France are at best muted and in many cases weakening as we come into the middle of the year.”

The index tracking the manufacturing sector rose to 45.1 from 43.0 in August but remained firmly in contraction for the sixth month in a row. Manufacturing export orders dropped to 39.5, falling at the fastest rate since April 2009.

The services sector PMI, having climbed above 50 in July, retreated to 48.3 in August. It also contracted in June.

Germany's "Teflon economy" remained resilient throughout Europe's three-year debt crisis that has hit its peers, which are also major markets for its exports.

But recent data have showed declines in manufacturing and industrial output, imports and exports. Economic growth slowed in the second quarter and key sentiment indicators have threatened contraction if the debt crisis runs unresolved for much longer.

If the German slowdown worsens, that could also affect the willingness of ordinary citizens to contribute to euro zone bailouts, but for now Germany's labour market is still holding up well, wages have risen and inflation is relatively low.

A sub-index tracking employment in Germany's private sector - combining manufacturing and services industries - grew again at 50.5, up from 49.2 in July.

Preliminary data last week showed the economy grew by 0.3 per cent in the second quarter, helped by exports to countries outside of Europe, but that was down from 0.5 per cent in the first three months.