• Prior 45.5
  • Services PMI 48.2 vs 48.0 expected
  • Prior 47.7
  • Composite PMI 46.1 vs 47.5 expected
  • Prior 47.0

Oh, dear. This runs back the optimism from the French PMI data earlier. But at least the services sector continues to show signs of an improvement, so there is some hope. Still, Europe's largest economy continues to struggle hard to start the year and that's not a good look whatsoever.

Looking at the details, demand conditions continue to weaken but at least employment conditions are seen holding steady. One piece of bad news is that business costs are seen rising at their fastest pace in ten months, partly driven by higher wages. HCOB notes that:

"The German economy remains under pressure. With the HCOB Composite PMI dropping to 46.1, it's not just a monthly dip, but it marks the eighth consecutive month of contraction. The manufacturing sector is dragging down the overall economic performance more than the services sector can compensate. Looking at the Composite PMI, it's evident that Germany is facing a shortage of new orders both domestically and internationally.

“After a glimmer of hope in recent months, the German industry is feeling pretty bleak now. The HCOB Flash PMI for Germany paints a gloomy picture in February. Clearly evident in HCOB’s PMI is a decline in output, alongside plummeting new orders both domestically and internationally. While falling manufacturing input prices and shorter delivery times may seem positive at first glance, especially given the pressure on prices and the crisis in the Red Sea, these factors actually underscore the chronic weakness in demand in the sector.

“Despite taking a hit, the service sector is still a glimmer of hope for the Germans. According to the HCOB Flash PMI, services companies have positive expectations for future business, supported by a significant increase in employment numbers. That’s despite demand being down overall and prices for inputs still surging . We can see a light at the end of the tunnel, but it might take until the second quarter to reach it.

“Looking ahead to 2024, the outlook for the German economy isn't exactly bright. Although the HCOB Flash Composite PMI's expectations for future output are still above 50, they're significantly lower than its long-term average. The German Government recently revised its growth forecast down from 1.3% to 0.2%, while HCOB is a bit more optimistic at 0.5%. However, action is needed to tackle the structural issues, especially with an aging population and shifting work behaviours on the horizon."