German business activity slump suggests recession ‘well underway’ -PMI

BERLIN – Business activity in Germany contracted for a fourth straight month in October as manufacturing’s downturn was matched by a renewed decline in services, a preliminary survey showed on Tuesday, suggesting a recession is well underway.

The HCOB German Flash Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 45.8 in October from September’s 46.4, below the 46.7 forecast by economists.

A reading below the 50 level points to a contraction in business activity.

The composite PMI index tracks the services and manufacturing sectors that together account for more than two-thirds of the German economy, Europe’s biggest.

“Germany is kicking off the final quarter on a sour note,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, adding that with the drop in the composite PMI, “there is much to suggest that a recession in Germany is well underway.”

Business activity in the services sector was unexpectedly back in contraction territory after slight growth the month before, with the reading falling to 48.0 from 50.3 in September. Analysts polled by Reuters had expected a reading of 50.0.

A steep rise in operating expenses, linked to wage demands and inflation, as well as a dip in new business had brought service providers below the 50 mark, according to the survey.

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The manufacturing PMI rose slightly for the fourth month in a row, to 40.7 from 39.6 in September, in line with analysts’ expectations, though still deep in contraction territory.

“Looking for some glimmers of hope? Well there are, especially in the manufacturing sector,” said de la Rubia, pointing to improvements in new orders and output, as well as an increase in stocks of purchases.

“We take these developments as signs that there is some bottoming out happening in this sector. Manufacturing might return to growth territory in the early part of next year.”