Purchasing Manager Index: German industry continues to move forward
by David Fleschen
Business conditions in German industry continued to improve in August. This is signalled by the seasonally adjusted IHS Markit/BME Purchasing Managers Index (EMI), which currently stands at 52.2 points, a 22-month high after 51.0 in July. Accordingly, incoming orders continue to recover from their lows measured at the peak of the coronavirus lockdown. In addition, the production rate rose to its highest level in two and a half years according to IHS Markit. Although job cuts continued, they were less severe than in the previous month due to the improved business outlook and growing order backlogs.
"German industry has succeeded in expanding its production for the second month in succession. However, in view of the Corona crisis, which has not yet been overcome, and the associated negative consequences for large parts of the economy, it is still too early to give the all-clear," emphasized Dr. Silvius Grobosch, General Manager of the German Association of Materials Management, Purchasing and Logistics. (BME), on Friday in Eschborn.
"According to EMI, German industry has left the corona recession behind it, and not only that: the downward trend of last year has also been made up for," commented Dr. Gertrud R. Traud, Chief Economist of Helaba Landesbank Hessen-Thüringen, on Friday in response to a BME inquiry about the current EMI data. The expansive measures of the past months seem "to have been well received by the companies. It is now important that the upswing is not destroyed by lockdowns. Despite this improved sentiment, it should be noted that the pre-Corona crisis level will probably not be reached again until 2022," added the Helaba Bank Director.
"The German economy is on course for growth in the third quarter. But there is no reason for euphoria," Dr. Ulrich Kater, Chief Economist of DekaBank, told the BME on Friday. He concluded by saying that the corona development requires the highest level of vigilance and remains the greatest challenge for the German economy.
"The increase in production and new orders in August represents an important step out of the pandemic valley for many companies. Even if the economic slump will not be as deep as originally feared, many companies are still a long way from the turnover they had before the crisis," DIHK expert Melanie Vogelbach emphasized on Friday in her EMI statement for the BME. According to the DIHK survey, around one in two companies does not expect a rapid return to normality. This is added to this: The order situation is currently being driven strongly by the catch-up effects of previously failed business. Vogelbach continued: "Current expectations are therefore subject to the proviso that the positive development continues. Uncertainties in foreign business are also dampening the economic recovery. Falling demand, a lack of investment, disruptions in supply chains and restrictions on business travel are still hampering international business. The financial situation in a number of companies also remains challenging. More than ever before, these companies need good conditions for doing business in Germany.
Regarding the latest development of the EMI sub-index purchase prices, Dr. Heinz-Jürgen Büchner, Managing Director Industrials, Automotive & Services of IKB Deutsche Industriebank AG, told the BME on Friday: "The significantly improved EMI figures are also reflected in the development of world raw material prices: These rose by a good seven percent on average across the board in August 2020. As a result of the appreciation against the US dollar, however, the increase in the euro zone was only 3.8 percent. The price increase was particularly sharp for aluminum, copper and nickel. In contrast, the price increase for precious metals was driven less by industrial than by investment demand. The sharp rise in spot market prices for iron ore was now also reflected in firmer steel prices. Nevertheless, we expect a rather stable sideways movement for industrial metals in the next three months with only slight upward potential.
Source: BME, Photo: Fotolia