Report show German private sector sink deeper into contraction in September

Germany’s private sector economy contracted further in September, marking the steepest decline in seven months, according to a report by data provider S&P Global released Monday.

The country’s business activity saw a sharp reduction in manufacturing output, along with a near-halt in the growth of the service sector. Employment also dropped at an accelerating pace, as business expectations turned pessimistic for the first time in 2024.

The report noted a softening of inflationary pressures, with price increases easing in services and more prevalent discounting in the manufacturing sector.

Germany’s manufacturing purchasing managers index (PMI) fell to 47.2 in September, down from 48.4 in August, reflecting the steepest contraction in 12 months, the report showed. A PMI below 50 indicates a contraction in activity.

“The drag from the manufacturing sector increased as goods production posted its steepest rate of contraction for 12 months,” it said.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said the deepening downturn in the manufacturing sector has dashed hopes for an early recovery.

“Output decreased at the fastest rate in a year, with new orders collapsing,” he said, adding that companies are cutting jobs at rates unseen since the COVID-19 pandemic.

“This comes as several major automotive suppliers have announced significant job reductions. These troubling figures are likely to intensify the ongoing debate in Germany about the risk of deindustrialization and what the government should do about it,” de la Rubia.

He also warned that a technical recession seems to be baked in.