German Business Activity Misses Forecasts on Industry Weakness

1j7v321mt4))q6xk97nvqj8v_media_dl_1.png S&P Global

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(Bloomberg) — German private-sector activity grew at a weaker pace than anticipated in December as manufacturing unexpectedly recorded its worst performance in 10 months.

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S&P Global’s Composite Purchasing Managers’ Index dipped to 51.5 from 52.4 the previous month — keeping above the 50 threshold separating expansion from contraction thanks to a fourth straight month of expansion for services. Analysts had expected an unchanged reading.

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“The service sector is stabilizing the economy as a whole and is likely to contribute significantly to positive GDP growth in the fourth quarter,” Cyrus de la Rubia, an economist at Hamburg Commercial Bank, said Tuesday in a statement, describing the situation around manufacturing as “a mess.”

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The data suggest Europe’s largest economy is still managing to eke out growth before an expected upturn next year driven by Chancellor Friedrich Merz’s spending on infrastructure and defense. The Bundesbank and other forecasters expect output to rise in the fourth quarter, helped also by the European Central Bank’s interest-rate cuts since last summer.

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The PMI numbers contrast with recent data on German manufacturing that painted a rosier picture for the sector. Factory orders surged in October — due in particular to a jump in the transport category that includes aircraft, ships, trains and military vehicles — while industrial production also beat expectations.

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“Despite warning lights flashing in the industry, there are significantly more manufacturing companies looking ahead to the coming year with confidence,” de la Rubia said. “The corresponding index has jumped upwards, possibly reflecting the fact that the government has launched a number of transport projects, decided on reforms to reduce bureaucracy, and wants to expand defence capabilities. Only if these measures result in an increase in incoming orders will the industry regain momentum.”

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Manufacturers are still grappling with challenges like higher US tariffs, fiercer competition from China and costly energy, alongside longer-standing issues including excessive red tape and a lack of skilled workers.

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PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.

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Data later Tuesday are expected to show composite PMI readings in the UK and the US remaining well over 50.

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—With assistance from Harumi Ichikura, Joel Rinneby and Mark Evans.

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