The contraction in German business activity eased a little in December thanks to a resumption in services-sector growth, though manufacturers’ struggles worsened.
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Published Dec 16, 2024 • 2 minute read
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(Bloomberg) — The contraction in German business activity eased a little in December thanks to a resumption in services-sector growth, though manufacturers’ struggles worsened.
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The composite Purchasing Managers’ Index by S&P Global increased to 47.8 from 47.2 in November, holding below the 50 threshold separating expansion from contraction, data Monday showed. That was just ahead of the median estimate of analysts surveyed by Bloomberg. For services, the gauge advanced to 51 from 49.3.
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“This improvement in services is a good counterbalance to the quicker decline in manufacturing output, giving some hope that GDP might not have shrunk in the last quarter of the year,” Cyrus de la Rubia, an economist at Hamburg Commercial Bank, said in a statement. “The manufacturing sector did not exactly deliver any holiday cheer. Output dropped much faster than in the previous two months, and new orders fell at one of the quickest rates all year.”
Europe’s biggest economy is set to shrink for a second straight year due to dwindling foreign demand and the jump in energy prices that followed Russia’s invasion of Ukraine. There are also new headwinds from possible US trade levies and political uncertainty before snap elections.
The Bundesbank last week slashed its growth outlook for this year and next, predicting GDP will drop by 0.2% in 2024 and rise by that amount in 2025. It said risks are skewed to the downside, citing in particular US economic policy under incoming President Donald Trump.
The PMIs come on the day that Chancellor Olaf Scholz is set to trigger early elections for Feb. 23 – a vote that may see him replaced and a new administration arrive that will loosen curbs on government borrowing.
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That would be welcome news for the 20-nation bloc as a whole, on which Germany’s weakness has been weighing and which is now also grappling with fiscal and political upheaval in its No.2 economy, France.
“We are inclined to expect a recovery in the German services sector, buoyed by improved sentiment over future activity and the upcoming snap elections in February, which should bring more political clarity,” de la Rubia said.
PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.
—With assistance from Joel Rinneby, Mark Evans and Alexander Weber.
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