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Falling demand hits German manufacturing

Friday, November 02 09:21:11

German manufacturing activity shrank for the eighth straight month in October as falling demand in Europe and lower investment levels in Asia weighed on new orders for German products, a survey showed today. Markit's Purchasing Managers' Index (PMI) for the German manufacturing sector fell to 46.0 in October from 47.4 the previous month. The final reading was slightly above the preliminary figure of 45.7 but remained well below the 50 line that divides growth from contraction. Output in the sector declined as new orders dropped for the 16th consecutive month. New orders from abroad fell at the second-sharpest rate since April 2009. "Germany's manufacturing sector continued to struggle for momentum in October amid weakening demand from its key export markets," said Tim Moore, senior economist at Markit. "Intermediate and capital goods producers led the downturn in output, partly reflecting shrinking sales to southern Europe alongside reports of softer investment spending across Asia."

Europe's largest economy has remained resilient so far to the 3-year-old crisis rattling its neighbours and probably grew in the third quarter, but signs are increasing that momentum is stalling. Data over the past month has shown business sentiment and industry orders slipping, the private sector contracting, and unemployment rising. Berlin cut its 2013 growth forecast last month to 1 percent from 1.6 percent due to the weak European economy. Firms are seen holding back on investment due to uncertainty over the euro crisis, while European austerity measures and the global economic slowdown increasingly weigh on demand for German goods.

Markit's PMI survey showed backlogs of work among firms in the manufacturing sector fell sharply in October as companies focused spare resources on completing outstanding projects. A sub-index for staffing levels in the sector fell below the 50 mark again, dropping to its second-lowest lowest level since January 2010 and pointing to job cuts. "The latest data also suggested that manufacturers are gearing up for a difficult final quarter of 2012, as job cuts returned and efforts to reduce warehouse inventories intensified," said Markit's Moore. "However, there was some positive news for operating margins, as price discounting stabilised and input cost inflation was unchanged on the previous month." ( C) Reuters