The German economy witnessed a sharp loss of momentum at the end of the second quarter, according to the latest flash purchasing managers’ index (PMI) data from S&P Global. Falling exports acted as a drag, while there were also signs of domestic demand coming under pressure from heightened economic uncertainty and sustained strong inflation.

The expectations of companies towards future activity slumped to their lowest since the first wave of the COVID-19 pandemic over two years ago, with manufacturers growing increasingly pessimistic about the outlook.

The German economy witnessed a sharp loss of momentum at the end of the second quarter, according to the latest flash purchasing managers’ index (PMI) data from S&P Global. Falling exports acted as a drag, while there were also signs of domestic demand coming under pressure from heightened economic uncertainty and sustained strong inflation.

The headline S&P Global flash Germany PMI composite output index fell for the fourth month in a row in June, signalling a sustained loss of momentum in the private sector economy. At 51.3, the latest reading was down from 53.7 in May and the lowest since the fourth wave of the pandemic in December last year.

Services growth slowed to a five-month low (index at 52.4) amid a waning of demand and some reports of staff shortages, while manufacturing output contracted for the second time in the past three months (index at 49.0).

Output of goods and services was supported somewhat by work on backlogs, masking an even weaker trend in inflows of new business. Overall new orders fell for the first time this year and to the greatest extent since June 2020.

However, the main drag came from manufacturing, where firms recorded a steep and accelerated decline in new orders that was the sharpest for two years. Goods export demand fell markedly, with firms commenting on the impact of the war in Ukraine, disruption to business in China, elevated prices and high stock levels among customers.

June’s flash data showed sharp increases in both pre- and post-production inventories held by German manufacturers. The latter rose to the greatest extent since the initial COVID-related disruption two years ago, amid reports of the postponement or cancellation of orders.

Supply bottlenecks continued to lead manufacturers to keep higher stocks of materials and components. That said, the incidence of delivery delays did ease slightly to the lowest since February.

Average prices charged for goods and services rose at a slower rate in June.

Looking ahead, German businesses reported their lowest confidence towards future activity for over two years in June, S&P Global said in a press release.

The decline in expectations owed exclusively to the manufacturing sector, where sentiment turned increasingly negative over concerns about falling demand, persistently high inflation and continued supply disruption.

Fibre2Fashion News Desk (DS)