A leading analyst has described the current situation in Germany‘s manufacturing sector as “pretty grim”, as the purchasing managers index (PMI) closed the year at 42.5, a three-month low.
“Production is on a steep decline, and new orders keep slumping, making it clear that the industry won’t be coming out of recession anytime soon,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, commented, as Germany closed 2024 with a sharp contraction in business conditions.
Production volumes
Production volumes decreased at one of the fastest rates observed in the past 14 months, with the intermediate goods sector particularly hard hit. In addition, new orders also fell significantly, while export orders declined at a slower pace.
‘There were further cutbacks to employment and inventories as firms adjusted to the weaker demand environment, albeit with the rates of decline easing in each case,’ a statement from Hamburg Commercial Bank, produced in association with S&P Global, noted. ‘Growth expectations amongst goods producers remained muted, and even weakened slightly from the month before, reflecting political uncertainty and concerns for the German economy.’
Employment in Germany’s manufacturing sector continued to contract for the eighteenth consecutive month – while the rate of job cuts slowed – and stock levels of both pre- and post-production inventories fell, reflecting weak demand.
Expectations for 2025
As regards manufacturers’ growth expectations for the coming year, these have been revised down since November, and currently run ‘well below’ the long-term average. Political uncertainty and weakness in the construction and automotive sectors are among the chief concerns cited.
“Looking back, it has been a lost year for the manufacturing sector,” de la Rubia noted. “The PMI stayed continuously in recessionary territory, companies kept cutting staff month after month, and order backlogs fell across the board. The only slightly positive note is that staff reductions in recent months have led to a slight increase in labour productivity. However, this increase isn’t enough to turn things around.
“The manufacturing slump is widespread across different sectors. Intermediate goods took the biggest hit in December, with the corresponding PMI dropping like a rock to the lowest level of the year. Things are not looking much better for the investment goods sector either, as its PMI has been stuck in recessionary territory all year long. Given that both of these sectors are heavily exposed to tariffs threatened by the US, it’s hard to imagine a sustainable recovery in the coming quarters.” Read more here.
