Germany’s private sector output growth slows further in September

Germany’s private sector companies saw a further slowdown in their output growth during the end of the third quarter. The Markit Flash Germany Composite Output Index dropped to 52.7 in September from 53.3 in August, and thus hints at the weakest growth in activity in nearly one-and-a-half years. Meanwhile, manufacturers registered ongoing strong growth in the month. The Flash Germany Manufacturing PMI rose to 54.3 in September from 53.6 in August.

The September data showed an additional increase in new order intakes that companies usually linked to a combination of better marketing initiatives and solid demand from foreign markets, noted Markit. However, the pace at which new business rose continued to stay lower than the levels witnessed in the first half of 2016. But manufacturers hinted at the most solid pace in new export orders since the start of 2014, with the U.S. and Asia mentioned in particular as the sources of growth.

Business outstanding was up just slightly in September as firms were able to process backlogs in the midst of weak new order growth. A drop in work-in-hand at service providers was in contrast with a strong rise at manufacturers.

The recent survey results indicated towards a further strong increase in private sector employment, with the pace of job creation slightly changed from that seen in August. The current period of continuous employment growth now extends to just under three years. Input costs increased for the fifth straight month in September, partially due to rise in raw material prices and higher wages. The pace of cost inflation rose in September and was amongst the most solid registered for more than a year.

Certain clients passed higher input costs on their in the form of higher charges. The pace of output price inflation was quite noticeable with both service providers and manufacturers raising their charges. German manufacturers continued to be wary regarding their stock policies in September, given that finished goods inventories dropped at the most rapid rate since 2010 and pre-production stock falling further, said Markit.

In the meantime, business optimism at service sector companies increased to a three-month high, with panellists anticipating efficiency improvements, higher investments and new clients to stimulate growth in the next 12 months.