After six long months of contraction, Germany’s private sector has finally shown signs of stabilization, according to a recent survey.
The HCOB German flash composite Purchasing Managers’ Index (PMI), a key economic indicator compiled by S&P Global, has surged to 50.1 in January.
This marks a significant turnaround from December’s 48.0, and crucially, pushes the index above the 50.0 threshold which separates growth from decline.
This notable shift, reaching a seven-month high, has surpassed analysts’ expectations, who had predicted a reading of 48.2 in a Reuters poll, signaling a potential turning point for Europe’s largest economy.
Services sector leads the charge, manufacturing shows resilience
The data reveals a tale of two sectors.
The services industry has displayed remarkable resilience, with its business activity index climbing to 52.5, up from 51.2 the previous month.
This represents a six-month peak and surpasses the 51.0 forecast by economists, reflecting sustained growth within this sector.
While the manufacturing sector is still operating in contraction territory, its index has also improved to 44.1 from 42.5, beating the anticipated rise to 42.7.
This slight improvement offers a glimmer of optimism for a sector that has been under significant strain.
“The PMI offers some hope that Germany might dig itself out of the recessionary phase of the past two years,” notes Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
Manufacturing output slows decline amidst global pressures
While manufacturing continues to contract, the rate at which output is shrinking has slowed to its lowest since mid-2024.
This positive shift is mirrored in new orders, which have seen a slight easing.
However, the sector still grapples with pressures from intense international competition and customer hesitancy, a consequence of prevailing economic and political uncertainties.
Despite these headwinds, there is a hint of improvement: the decline in new export business has eased to its slowest in eight months, indicating a potential easing of external pressures.
Optimism on the horizon: firms bet on future activity
Despite the current challenges in demand across both sectors, businesses are demonstrating increased confidence about future activity, particularly within the manufacturing sector.
Optimism within manufacturing has reached its highest point in almost three years, suggesting that firms are banking on a potential rebound.
This newfound optimism, following two years of economic contraction in Germany, might signal a turning of the tide for the German economy, which has been grappling with a downturn in recent times.
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