Data released on Monday showed business activity in Germany contracted at its fastest pace in seven months.
The HCOB Germany Composite Purchasing Managers’ Index (PMI) compiled by S&P Global fell to 47.2 in September from 48.4 in August.
The figure is below the 50-point threshold, signaling a significant contraction in Europe’s largest economy.
Germany’s economic downturn has dragged the euro zone economy into contraction this month, its first decline in seven months.
The sharp drop signals growing concerns about the performance of Germany’s economy, with economists now predicting a technical recession.
“A technical recession seems to be priced in,” Dr. Silas de la Rubia, chief economist at Hamburg Merkbank, said, adding that he expected the German economy to shrink by 0.2 percent in the third quarter.
The manufacturing recession worsens
German manufacturing remains a major factor in the country’s economic decline.
The manufacturing PMI fell to 40.3 in September from 42.4 in August, the sector’s deepest contraction in months.
A continuing weakness in manufacturing is dampening hopes for a swift recovery as new orders fall sharply and companies cut jobs at a pace not seen since the COVID-19 pandemic.
The manufacturing slump has deepened again, and hopes for a quick recovery have vanished.
He noted that this sharp decline in output has also spread to the services sector, which has seen growth slow for a fourth consecutive month.
Services sector and business confidence decline
Germany’s services sector index remained in positive territory at 50.6, but down from 51.2 in August, reflecting growing consumer caution.
Businesses are reporting a decline in new investment, citing concerns about the overall health of the economy.
Dr de la Rubia highlighted the growing pessimism among manufacturers, saying:
Optimism is a thing of the past, and manufacturers are feeling very gloomy about their future activities.
Recent challenges facing major companies like Volkswagen have fueled fears of deindustrialization, with many companies announcing significant job cuts.
The company has struggled to move away from fossil fuels and is considering closing two factories in Germany, which would be its first closures in the country.
Economists are bracing for continued economic weakness after Germany’s flash composite PMI fell to its lowest level since February.
A contraction of 0.2% in the third quarter would confirm Germany’s entry into a technical recession after a 0.1% decline in GDP in the second quarter of 2024.
The recession will cause the eurozone economy to shrink overall
The German economic slowdown led the euro zone as a whole to contract this month, marking its first negative growth in seven months.
Overall euro zone business activity fell in September to an eight-month low of 48.9, as shown by the HCOB flash euro zone PMI index.
The euro zone’s decline was exacerbated by Germany’s continuing recession and a contraction in France’s private sector as the stimulus effect from Olympic-related activity in August faded.
Business confidence also continues to weaken, with companies reporting declines in new orders across the region.
