Germany's Manufacturing PMI Signals Industry's Struggle to Escape Decline

Forex - Germany's manufacturing sector finished 2024 on a negative note, as sharp declines in production and new orders indicated that the industry's exit from recession is unlikely in the near future. The HCOB Germany Manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, dropped from 43.0 in October and November to 42.5 in December, confirming earlier forecasts.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, stated, "The situation in the manufacturing sector remains quite bleak. There is a sharp decline in production, and new orders continue to decrease, clearly indicating that the sector is unlikely to recover from recession soon." He added that the intermediate goods category has experienced its steepest decline in the past year and noted that the outlook for the capital goods sector is also not looking good.

Employment in the manufacturing sector declined for the 18th consecutive month as companies adjusted to weak demand; however, the rate of job losses fell to its lowest level since August.

According to the survey, despite improvements in input delivery times and a continued drop in input prices, manufacturers' growth expectations remain low due to political uncertainties and challenges in the construction and automotive sectors.

De la Rubia mentioned that the trend of deteriorating business conditions could end in the second half of 2025, suggesting that Germany should have a new government after the February elections and that caution regarding investment and consumption may change. "However, it is difficult to find support for this thesis in the figures. The future production index is just slightly above 50, indicating that companies expect to produce only a little more than they do today within a year," he said.