Germany August flash manufacturing PMI 39.1 vs 38.7 expected

• Prior 38.8
• Services PMI 47.3 vs 51.5 expected
• Prior 52.3
• Composite PMI 44.7 vs 48.3 expected
• Prior 48.5

Ouch. That services reading is really awful as German business activity suffers its steepest decline since May 2020. Now both the manufacturing and services sectors are seen contracting and that is going to lead to fresh worries about the outlook heading into the final stretch of the year. Despite the improvement in the headline, manufacturing output was seen falling to a 39-month low. HCOB notes that:

“Any hope that the service sector might rescue the German economy has evaporated. Instead, the service sector is about to
join the recession in manufacturing, which looks to have started in the second quarter. Our GDP nowcast model, which
incorporates the PMI flash estimate, now indicates a deeper fall of the whole economy than it did before, at almost -1%.

“Stagflation is an ugly thing. However, it’s exactly what is happening to the services economy, as activity has started to
shrink while prices have shot up again, even picking up pace. When inflation cannot be tamed in the eurozone’s biggest
economy, this is bad news for the ECB.
“Manufacturing output took another hit in August, dropping even faster. Having said this, there is a glimmer of hope that the
downturn in industry is nearing its bottom. Indeed, the downward trend in the PMI measures of new orders and stock of
purchases have lost momentum. This could well mean that the inventory cycle is only a few months away from a turnaround.

“The rate of decline in new export orders eased in August, though demand from abroad is still shrinking quickly. We take this
development as the first tentative sign that the global economy’s industrial sector is about to stabilize sooner rather than
later.

“The fall in services activity has only just started as new business declined for the second month in a row and companies
showed reluctance to hire new staff. However, services companies seem to feel surprisingly bold jacking up prices at an
even quicker rate.”