- Manufacturing PMI 49.9 vs 51.0 expected
- Prior 51.4
- Services PMI 47.8 vs 47.0 expected
- Prior 46.9
- Composite PMI 48.6 vs 48.4 expected
- Prior 48.4
After the dismal French numbers earlier, this is arguably some little bit of comfort for investors despite German economic activity showing a contraction for a second month running. The Middle East conflict continues to bite at demand conditions while at the same time driving up price pressures in Europe’s largest economy.
As manufacturing activity starts to feel the heat now after the frontloading in March and April, the only bit of good news is that at least the services sector did not suffer worse conditions than seen in April.
With the German economy poised to contract in the second quarter now, stagflation risks will be a key concern. That especially as firms continue to report a further intensification of cost pressures, as input price inflation continues to accelerate.
S&P Global notes that:
“With the ‘flash’ PMI data for May signalling a second
consecutive monthly decrease in business activity,
the German economy is on course to contract in the
second quarter of the year. In manufacturing, the boost
that we saw from efforts to build stocks and get ahead
of price increases and supply shortages appears to be
fizzling out, with the latest data showing a renewed
drop in new orders and a near-stalling of output growth.
“The disruption from the effective closure of the Strait
of Hormuz continues to filter through to prices, with
input cost inflation showing a further acceleration due
to the knock-on effects of higher energy prices and
supply shortages.
“Although input cost inflation has continued
accelerating, slower rises in both manufacturing and
services output prices point to businesses shouldering
a greater proportion of the burden. This suggests
some containment of inflationary pressures, but it also
hints at an increased squeeze on company margins
which has consequences of its own, not least for the
labour market as firms look to mitigate spiralling costs.
Employment fell at the quickest rate for over a yearand-a-half in May, led by deep cuts to manufacturing
workforce numbers.”
