Prior 42.5Services PMI 49.8 vs 48.8 expectedPrior 48.3Composite PMI 47.4 vs 47.0 expectedPrior 46.3

It’s a tale of two sides again for Germany as manufacturing conditions remain dire but at least offset by a stronger services sector performance. There was also a slight decline in employment and at the balance, this will just rebuff expectations of a June rate cut by the ECB. HCOB notes that:

“Germany is not getting back on track. The manufacturing sector closed the first quarter of 2024 with a disconcerting rate of
contraction, echoing the woes of the previous month. By contrast, the services sector has managed to hold its ground,
maintaining activity at the weak levels observed in February. Overall, Germany now teeters on the edge of a technical
recession. According to our nowcast model, which takes the latest PMIs into account, the manufacturing sector shrank by a
whopping 1.7% in the first quarter. The more important service sector stagnates according to our model and stabilises the
overall situation somewhat. Therefore, our GDP nowcast is at -0.3 %. This corresponds to the rate of contraction in the
fourth quarter of 2023.

“While there are signs of a turnaround in manufacturing worldwide – in February the global PMI moved into expansion
territory for the first time since August 2022 – there are virtually no indications of a recovery in Germany. Incoming orders are
continuing to shrink almost unabated, the reduction in employment even accelerated in March and companies have reduced
their inventories of purchased goods more sharply than in any of the previous five months. The latter is surprising insofar as
a stabilisation has recently been observed globally. So far, Germany has clearly not been able to participate in the global
turnaround in the inventory cycle. However, we are confident that this trend will also arrive in Germany with a certain delay.

“The services sector could soon start to pick up again. For March, the PMI is signalling stagnation, but the index has moved
upwards for the second month in a row. In addition, service companies have been building up their workforce for three
months, even if new orders are still shrinking. The increased confidence that things will be better in twelve months’ time is
also in line with the rise in staff. Service providers are experiencing some relief in terms of input costs, which did not rise
quite as sharply in March as in previous months. However, pricing power also appears to have declined somewhat, as
charges for clients were raised significantly less than before.

“The numerous delivery delays, particularly relating to transport via the sea – the Houthi attacks in the Red Sea and the
drought problems in the Panama Canal are the key words here – are not causing any difficulties for German producers
overall. In fact, delivery times were significantly shorter in March, which is to be welcomed. The flip side of the coin is that
these improving delivery times are a clear sign of the continuing weakness in demand.”



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