German growth momentum evaporates

By BLOOMBERG

FRANKFURT • Germany’s economy started the fourth quarter (4Q) on the back foot, with private-sector activity slowing to the weakest since 2015 and factory orders contracting for the first time in four years.

The composite Purchasing Managers’ Index (PMI) for Europe’s largest economy dropped to 52.7 in October from 55 last month, according to a flash reading released by IHS Markit yesterday. The result is below all estimates in a Bloomberg survey of economists.

The euro fell after the survey was released and was down 0.4% to US$1.1426 (RM4.75) as of 9:42am Frankfurt time yesterday.

After the Bundesbank said on Monday that German economic growth may have temporarily stalled in the 3Q, the survey points to a more pronounced loss of momentum. Concerns over protectionism and financial-market volatility have increased, and business confidence probably cooled in October. Companies from Daimler AG to HeidelbergCement AG cut their profit forecasts.

“Unpleasant reading,” Phil Smith, an economist at IHS Markit, said of the PMI. It shows “slowdowns in rates of growth across all the main measures of business performance: Output, new orders and employment”.

Part of the decline may reflect issues in the car industry, where production has been held up by new emissions tests, though some companies are also feeling the impact of emerging-market turmoil. French manufacturing growth also weakened in October, and Renault this week lowered its market outlook for China.

Signs of sustained weakness in Europe’s powerhouse economy are likely to prompt concern among European Central Bank policymakers.

They gather on today to take stock of trends in the 19-nation region and are expected to confirm their gradual path toward exiting unconventional stimulus.

Threats of a trade war, uncertainty over Britain’s departure from the European Union and wider geopolitical nerves all weighed on German sentiment at the start of the 4Q, according to the report. Those factors pushed companies’ expectations for the next 12 months to the lowest level in four years.

At the same time, German businesses raised prices to protect their profit margins, with services posting the biggest increase since the survey began in mid-1997.