Germany Can’t Catch A Break As Manufacturing Slump Refuses To Abate

Just when it seemed as though things might be turning a corner in Europe, the outlook darkens anew.

Maybe that’s too strong – if it is, suffice to say the flash PMIs for December are underwhelming, especially on the manufacturing side.

In Germany, the epicenter of the global factory slump, the initial read on the manufacturing PMI for the last month of the year is just 43.4, below the 44.6 economists were expecting and below even the most pessimistic estimate (the range was 44 to 46). That’s down from 44.1 in November and represents the 12th straight month in contraction.

Phil Smith, Principal Economist at IHS Markit, said the flash numbers suggest “a weak end to a difficult year for the German economy”.

“Manufacturing continues to weigh heavily on private sector output, with faster decreases in factory production and employment in December causing the manufacturing PMI to tick down for the first time in three months”, he went on to say, adding that although “the service sector remains resilient… weak labour market trends are likely to be a restricting factor for the sector as we head into the new year”.

Recent data have been mixed in Germany. Last week, exports surprised to the upside, but data out earlier this month showed industrial production plunged the most in a decade in October.

Although a thawing of tensions between the Trump administration and Beijing should be a positive for Germany, China over the weekend threatened to retaliate against Berlin in the event Huawei is blackballed.

Meanwhile, in a rather unfortunate coincidence, the Economy ministry on Monday said it sees the “first signs” of an end to the manufacturing slump.

“The first glimmers of hope have appeared”, the ministry’s December report reads. It also notes a stabilization in orders, sales and sentiment. “All this points to a gradual stabilization in manufacturing, which could even expand slightly at the turn of the year”.

Still, the report admits of caution: “The uncertainty caused by the difficult external environment continues to be high and it remains to be seen how far the still tentative positive signals take root”.

Indeed.