Drop in demand weighs on German manufacturing, outlook darkens

A sharp fall in new orders weighed on German manufacturing activity in June, darkening the outlook for Europe’s largest economy, a survey showed on Friday.

S&P Global’s final Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of Germany’s economy, fell to 52.0 in June from May’s final reading of 54.8, in line with analysts’ expectations and with a flash estimate.

An index on new orders came in a 43.3, falling from 47.0 in May to hit the lowest level since May 2020 and dropping further below the 50 mark, which separates growth from contraction.

“We’re seeing a rapid correction in underlying demand for German goods,” said Phil Smith, economics associate director at S&P Global Market Intelligence, adding that firms reported “multiple headwinds to export sales”.

“With backlogs now in decline, firms have downgraded their expectations for output over the next 12 months to the gloomiest for over two years,” he said.

The survey pointed to some relief on the inflation front, with rates of increase in both input costs and output prices slowing for a second straight month.

“However, it’s difficult to untangle any alleviation of pressure coming from the supply side from the effects of weaker demand,” Smith added.