Germany’s PMI Falls to 7-Month Low, Sparking Eurozone Recession Fears in Manufacturing

Germany’s Composite PMI Hits 7-Month Low in September

Germany’s private sector activity continued to decline in September, reflecting broader economic struggles in the euro zone’s largest economy. According to a joint report by S&P Global and Hamburg Commercial Bank (HCOB), Germany’s Composite PMI Output Index fell to 47.2 in September, down from 48.4 in August. This marked the lowest level in seven months, signaling deeper contraction.

The EURUSD dropped sharply on the news and is now trading on the low of the session at 1.10982, down from the intraday high at 1.11673.

Sharp Contraction in Manufacturing

Germany’s manufacturing sector faced the sharpest decline in a year. The Manufacturing PMI dropped to 40.3 in September, a significant decrease from 42.8 in August. This 12-month low came in well below analysts’ expectations of 42.3, reinforcing concerns about the sector’s health. Manufacturing output in Germany has been in decline for several months, with no signs of imminent recovery.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, commented on the persistent downturn, saying, “The downturn in the manufacturing sector has deepened again, evaporating any hope for an early recovery.” The sector’s struggles have been a drag on Germany’s overall economic performance, with weakness beginning to seep into other areas of the economy.

Services Sector Slows Down

Although the services sector continued to grow, it showed signs of fatigue. The Services PMI Business Activity Index slipped to 50.6 in September, down from 51.2 in August. While still technically in expansion, the services sector’s growth has slowed for the fourth consecutive month. Economists had forecast a smaller drop to 51.0, indicating that the sector is feeling the impact of broader economic challenges.

The decline in services suggests that the ongoing industrial slowdown is beginning to affect other areas of the economy. De la Rubia noted that “the slump in manufacturing is beginning to spill over into Germany’s services sector,” which accounts for a significant portion of the country’s economic activity.

Economy Likely in Recession

The weak PMI data points to further economic contraction for Germany. With the economy shrinking by 0.1% in the second quarter, economists believe the third quarter will see a similar downturn, confirming a technical recession. De la Rubia forecasted a 0.2% contraction for Q3, marking two consecutive quarters of decline.

The composite index tracks both manufacturing and services, which together represent more than two-thirds of the German economy. The ongoing downturn in both sectors paints a bleak picture for Germany’s economic prospects in the near term.

Market Outlook: Bearish

Based on the latest data, the outlook for Germany’s economy remains bearish. With manufacturing in a deep slump and services growth faltering, it is likely that the German economy will continue to contract in the coming months. The prospect of a technical recession adds further downward pressure, suggesting little relief for traders looking at German markets in the short term. Expect continued weakness in German equities and a challenging environment for the euro.