Germany's economy is flashing yet another 'grim' warning after more weak data and a slump in demand

  • Weak manufacturing data and a reduced growth forecast fanned fears of a German recession and eurozone slowdown on Thursday.
  • Germany’s manufacturing PMI inched up from 44.1 in March to 44.5 in April, but manufacturing metrics and new export orders fell and business confidence remained weak.
  • Germany cut its annual growth forecast to 0.5% on Wednesday, a sharp drop from its 2.1% forecast a year ago.
  • Composite eurozone PMI and French manufacturing PMI also declined in April.

Disappointing manufacturing data and a weaker growth outlook fanned fears of a German recession and a eurozone slowdown on Thursday.

Germany’s manufacturing purchasing managers’ index (PMI), which is based on a survey of supply chain managers, inched up from 44.1 in March to 44.5 in April – its second-lowest reading since mid-2012.

Manufacturing output fell for a third consecutive month and orders fell sharply. New export orders also fell at the second-fastest rate in a decade, and business confidence remained close to the 50-month low it hit in December, according to IHS Markit.

“Though the PMI has ticked up from March’s 69-month low, it’s merely signalling the same modest rate of underlying growth as seen on average over the opening quarter of the year,” said Phil Smith, principal economist at IHS Markit. He cited “a declining car industry, strong competition across Europe and generally subdued global demand” as reasons for the weakness.

Trade tensions with the US, along with weaker demand for German exports in the UK and dented business confidence across Europe ahead of Britain’s exit from the European Union, have also weighed on demand, according to Reuters.

“The overall story remains grim,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.

The bad news comes after Germany’s finance ministry halved this year’s growth forecast to 0.5% on Wednesday, the latest in a series of cuts from its 2.1% projection a year ago, according to Bloomberg. The nation is now set to be Europe’s second-worst performer after Italy.

Germany’s manufacturing headaches continue to be offset by its strong service sector, however. Its services PMI reading rose from 55.4 to 55.6 in April, a seven-month high according to IHS Markit.

Still, the broader regional outlook remains weak. Composite PMI for the eurozone fell to 51.3 in April from 51.6 in March, as French manufacturing PMI slowed from 47.7 to 47.6 due to weak export demand, according to Pantheon Macroeconomics.

“What’s clear from today’s PMI numbers is that there are as yet no green shoots of spring for the Eurozone, said Neil Wilson, chief market analyst for Markets.com. “Manufacturing remains on the floor.”

“Overall, we see a further slowdown in Eurozone growth,” he added.

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