Characterized by markedly lower demand and rising competitive pressures, German manufacturers continued to face extremely tough operating conditions in March. Output was again scaled back rapidly, while jobs were lost at a rate unmatched in the survey history. Highlighting the ongoing weakness of the economic climate, the survey indicated record falls in input costs and output prices.
March’s seasonally adjusted Markit/BME Purchasing Managers’ Index (PMI) – designed to give a single-figure snapshot of operating conditions in the manufacturing economy – rose for a second successive month in March. However, at 32.4, unchanged from the earlier flash reading, the PMI remained entrenched well below the 50.0 no-change mark. For over the first quarter as a whole, the average PMI reading was worse than the fourth quarter’s previously unprecedented weak performance.
Output and new orders fell at slower, but historically steep, rates at the end of Q1. Companies continued to bemoan the negative impact that the global financial crisis was having on trade, both at home and abroad, with market conditions widely reported to be extremely fragile. Although the slowest since last October, the decline in new export orders was sharp and of a slightly greater magnitude than that for overall sales. Manufacturers continued to comment on subdued demand from key U.S. and Asian markets.
Market group data indicated that weakness in output and new orders was centered on the investment and (to a slightly lesser extent) the intermediate goods sectors. Some resilience to the economic downturn was signaled by consumer goods, which registered relatively modest cuts in
production and sales compared to the other two categories.
Workforce numbers declined at a fresh survey record pace in March. Firms signaled that job losses reflecting ongoing restructuring in response to lower production and new order requirements. Anecdotal evidence suggested that the use of shorter working hours had in some cases prevented redundancies and stemmed a greater fall in employment.
March’s survey pointed to another survey record fall in purchasing costs. Raw material prices were widely reported to have fallen, with manufacturers signaling that excess supply and overcapacity at vendors had enabled them to successfully negotiate lower prices. Falling input costs alongside rising competitive pressures led to a series record fall in average factory gate prices.
Supplier delivery performance improved at a survey record pace, reflective of vendors’ excess stocks and a steep reduction in buying activity. German manufacturers continued to unwind inventory positions, reducing both stocks of finished goods and purchases at survey record rates.
Commenting on the final Markit/BME Germany Manufacturing PMI survey data, Paul Smith, senior economist at Markit Economics, said: “The sector’s performance in Q1 was at least as bad as Q4 and, therefore, points to another heavy fall in GDP. Going forward, there is some glimmer of hope that the worst of the downturn may have passed given the slower rates of decline in output/new orders and the unwinding of inventory positions. Nonetheless, we remain at incredibly low index readings and a return to any level consistent with growth seems a long way off.”
