Optimism in German economy as PMI shows signs of recovery
We have learned of new readings for the German economy. PMI data for the industry indicate a continued slowdown. However, that is not the key point. May's PMI readings "give grounds for optimism" and may herald a "turning point" in the industry, states S&P economist Cyrus de la Rubia in the report.
Germany recorded a PMI of 45.4 points for the industry in May, according to preliminary data published by S&P on Thursday. Experts expected a result of 43.5 points, while a month ago, it reached 42.5 points. The scale of the recovery in the German industry still leaves much to be desired, as the reading is still far from the 50-point threshold, which delineates the boundary between contraction and growth.
PMI for Germany in May. S&P data
The PMI index for services reached 53.9 points. The economic consensus indicated 53.2 points. In April, the index achieved 53.2 points. The dynamics of recovery in this sector of the economy still do not impress.
S&P, in its commentary on the data, highlights other indicators. It states that the German economy entered a recovery path in May 2024, as key business activity indicators reached multi-month highs.
The most important seems to be the composite PMI index for Germany, which stood at 52.2 points compared to 50.6 points in April, reaching its highest level in a year.
As indicated by S&P Global data, the main driving force of the recovery remains the services sector. The business activity index in services rose to 53.9 points from 53.2 points a month earlier, recording its highest value in 11 months. Service companies reported faster order growth for the third consecutive month, driven by the first, albeit slight, recovery in foreign demand in a year.
The industry also sees "the light at the end of the tunnel"
The report also brings relatively good news from the industry. While the PMI index for this sector remains below the 50-point threshold separating growth from declining activity, it rose to 45.4 points in May from 42.5 points in April. As we read, this is the highest reading in 4 months. The subindex of industrial production jumped to 48.9 points, the highest in 13 months, signaling a marked slowdown in the decline in production.
"Signs of demand recovery are increasingly visible also in the industry," assesses S&P Global. As noted, the rate of decline in new orders in this sector slowed in May to its lowest level in two years, favourably influenced by the near stabilization of export sales.
Optimism is growing, inflation is slowing
According to S&P Global, German companies are looking to the future with growing optimism. The future output index rose in both industry and services, reaching in both cases its highest level since February 2022. "Entities are hopeful about the prospect of interest rate cuts and a recovery in investments," we read in the report.
May's data also brought positive signals regarding inflation. As S&P Global highlights, the pace of growth in selling prices and production costs significantly slowed, reaching the lowest level in over 3 years for selling prices and the lowest in half a year for costs.
"Data give grounds for optimism"
According to Cyrus de la Rubia, chief economist at Hamburg Commercial Bank quoted in the report, May's PMI readings "give grounds for optimism" and may herald a "turning point" in the industry. The economist expects a return to industrial production growth within 2-3 months. He predicts that in Q2, German GDP may grow by 0.3 per cent quarter-on-quarter.
On Thursday, we will also learn PMI data for the entire Eurozone. Experts at PKO highlight that "the consensus assumes that the outlook in European services has stabilized at a level indicating moderate recovery, accompanied by an increase in the manufacturing index, although it is still below the neutral level."
"The data will most likely confirm that the outlook in American manufacturing, despite a slight deterioration, remains better than in the Eurozone," they write in the morning report.
