German output picks up in May as euro-area remains subdued


FRANKFURT • Germany’s private sector saw overall output improve for a second month in May, despite a slowdown in services and a workforce contraction in manufacturing.

A Purchasing Managers’ Index (PMI) increased to 52.4 from 52.2 the previous month, IHS Markit Ltd said yesterday. Economists had forecast a decline.

Europe’s largest economy stagnated in the second half of last year (2H18) and a bounceback in the first three months of this year was probably due to one-off factors.

The Bundesbank said it sees few signs yet that German growth is picking up sustainably.

Separate data yesterday confirmed that the economy expanded 0.4% in the first quarter (1Q), driven by the strongest private consumption in almost eight years.

A broad gauge of activity in the manufacturing sector worsened, even as the contraction in output eased.

IHS Markit said it reflects falling backlogs of work as capacity pressures softened, with employers cutting their workforces. Factory job numbers are declining at the steepest rate in over six years.

“It is manufacturers who remain the most downbeat about the outlook amid lingering global trade tensions,” said IHS Markit economist Phil Smith.

“Though the survey highlights that fears of a slowdown may have started to spread to services, where confidence is now at its joint-lowest since 2014.”

Meanwhile, euro-area private sector output remained subdued in May as demand stayed stagnant and companies scaled back employment and expansion plans.

A PMI inched up to 51.6 from 51.5 in April, IHS Markit said yesterday.

The figure was marginally below economists’ expectations.

The bloc is currently headed for “lacklustre” growth of around 0.2% in the 2Q, according to IHS Markit.

The euro-area, and particularly Germany, have struggled to emerge from a manufacturing shock since 2H18 amid global trade tensions that threaten exports.

Officials at the European Central Bank will meet to set policy on June 6 and update their economic projections.

They predicted in March that growth will pick up in 2H19 — an outcome that IHS Markit sees at risk.

“A renewed deterioration in optimism about the year ahead suggests that the business situation could deteriorate further in coming months,” chief business economist Chris Williamson said.

“Worries reflected concerns over lower economic growth forecasts, signs of weaker sales and rising geopolitical uncertainty, with escalating trade wars and auto sector woes commonly cited as specific causes for concern.” — Bloomberg