Germany’s manufacturing downturn eases in December 2022: Report

Amid a slower fall in output, Germany’s seasonally adjusted manufacturing purchasing managers’ index (PMI) reached a 3-month high of 47.1 in December 2022, up from 46.2 in November, according to a report by S&P Global. The PMI reading reflected its output component, which showed the rate of contraction in production ease to a modest pace that was the weakest since last June.

The ease in manufacturing downturn was helped by a further reduction in supply chain frictions. Improvements in supply-side conditions in turn contributed to a marked cooling of price pressures across the goods-producing sector. Businesses’ expectations meanwhile improved notably, but they nevertheless remained pessimistic overall, with weaker demand conditions just one of the factors weighing on sentiment.

Amid a slower fall in output, Germany’s seasonally adjusted manufacturing purchasing managers’ index (PMI) reached a 3-month high of 47.1 in December 2022, up from 46.2 in November, according to a report by S&P Global. The PMI reading reflected its output component, which showed the rate of contraction in production ease to a modest pace.

The improvement in supply-side conditions was further highlighted by a second straight monthly reduction in average lead times on inputs. The extent to which vendor performance improved was the most marked since December 2019, according to the latest PMI survey report.

However, many manufacturers (particularly producers of intermediate goods) continued to reduce output in line with falling intakes of new work. New orders were down for the ninth month in a row in December, reflecting heightened levels of uncertainty and high stocks among customers. The rate of contraction remained sharp and much quicker than that of output, though it too eased to the weakest since last June. New export orders fell markedly amid reports of lower demand in China and across Europe.

As well as depleting backlogs of work during December, German manufacturers also recorded a further build-up of stocks of finished goods. That said, the latest increase—which was the eighth in as many months—was only modest and much weaker than seen in November. Pre-production inventories likewise rose more slowly, recording the weakest rate of accumulation in the current 15-month sequence. A number of firms in fact reported efforts to destock and as such cut back their purchasing activity. Overall buying levels among manufacturers fell sharply.

This reduction in demand for inputs meanwhile contributed to a sustained easing of supply chain price pressures. The rate of input cost inflation fell markedly for the third month in a row to its weakest in just over two years. It remained well above its pre-pandemic series average, however, owing in large part to high energy prices.

Factory gate charge inflation likewise fell sharply, down to a 22-month low, although it still remained at a level unsurpassed in the series history prior to March 2021.

December saw a notable improvement in manufacturers’ expectations towards future output, with confidence picking up further from October’s recent low to the highest since last March. Sentiment nevertheless remained pessimistic overall, with firms voicing concerns towards a slowing economy, energy supplies, high inflation, and the war in Ukraine.

On the employment front, latest data pointed to ongoing resilience as firms continued to fill vacancies. That said, the pace of job creation was the joint-slowest over the past 22 months.

Fibre2Fashion News Desk (DP)