The German economy accelerated its downturn in August and appears to be headed for a recession. The purchasing managers’ index for the entire private sector – i.e. industry and service providers – fell from 48.5 points in July to 44.7 points, as the financial services provider S&P Global announced in its monthly survey of around 800 companies with a focus on their buyers. The downward trend also accelerated in the euro zone.
It was the fourth straight decline. At the same time, the lowest value since May 2020 was reached. Economists had only expected a drop to 48.3 points. With the sharp drop in August, the growth threshold of 50 points is now well away. The service sector in particular was decisive for the rapid decline. The service industry barometer fell below the growth threshold – to 47.3 points after 52.3 points in July.
At 39.1 points, industry is even further below this mark, even if things went up a bit in August. Significant for the malaise is the international competitive position of mechanical engineering, which for a long time was the model branch of the European export champion Germany. According to an Ifo survey, the situation of machine builders has deteriorated in the competition for market shares.
Analysts commented on the data. Jörg Krämer, Chief Economist at Commerzbank, said: “After today’s slump, the trend-setting purchasing managers’ index for the service sector in the euro area is at a level at which recessions usually occurred in the past. After the purchasing managers’ index for industry sent such a recession signal already existed in the spring, everything is now pointing to a contraction in the euro economy in the second half of the year. The European Central Bank (ECB) will have to lower its optimistic growth forecast significantly. This will strengthen the position of the deaf in the ECB Council ECB will not raise interest rates further in September.”
Christoph Swonke from DZ Bank explained the following about the German Purchasing Managers Index: “In industry, the warning lights are still on red despite a barely noticeable improvement and even the service providers are reporting noticeable business losses. In the middle of the third quarter, the survey results are sending the signal of a significant weakening of the overall economic activity. There are currently no signs of an economic recovery”.