Map showing Germany

German Growth Momentum Evaporates as Factory Orders Shrink

Oct. 24, 2018
Companies from Daimler AG to HeidelbergCement AG cut their profit forecasts.

Germany’s economy started the fourth quarter 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 for Europe’s largest economy dropped to 52.7 in October from 55.0 last month, according to a flash reading released by IHS Markit on Wednesday. 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 $1.1426 as of 9:42 a.m. Frankfurt time.

After the Bundesbank said on Monday that German economic growth may have temporarily stalled in the third quarter, 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 policy makers. They gather on Thursday 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 fourth quarter, 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.

By Piotr Skolimowski

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Licensed content from Bloomberg, copyright 2016.

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