According to the Purchasing Managers Index
The economy is off to a surprisingly weak start to the year
January 24, 2024, 11:31 a.m
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The economy in Germany may have to continue to hope for relief in the first quarter. The purchasing managers’ index fell at the beginning of the year, although many experts expected a slight increase in advance. Things are worse for service providers than for industry.
The German economy got off to a surprisingly weak start to the year. The purchasing managers’ index for the entire private sector – industry and service providers combined – fell by 0.3 points to 47.1 points in January. The financial service provider S&P Global announced this in its monthly company survey. The barometer thus moved away from the growth threshold of 50 points. Economists surveyed by the Reuters news agency, however, had predicted a slight increase to 47.8 points.
“It’s a slow start to the new year,” said chief economist Cyrus de la Rubia of Hamburg Commercial Bank (HCOB), which is sponsoring the survey. Activity in the services sector not only fell for the fourth month in a row, but the downturn has also accelerated. In industry, however, the pace of the downturn has continued to slow. Overall, the survey “points to a continuation of the recession in the current quarter.” At the end of 2023, Europe’s largest economy had already shrunk by 0.3 percent.
“The current incidents in the Red Sea are impacting manufacturing supply chains,” said de la Rubia. Because of attacks by Houthi militias on merchant ships, many shipping companies are taking a detour around the Cape of Good Hope, which extends the journey from Asia to Europe and vice versa by around seven days and involves additional fuel costs running into millions.
Inflation is problematic for service providers
“Despite these challenges, the continued decline in purchasing prices suggests that transportation costs are not yet having a noticeable impact on the overall unit costs of the countless consumer goods transported via this route,” said the chief economist. Unlike in the manufacturing sector, inflation is likely to remain a problem for service providers.
The accelerated rise in costs ensured that their purchasing prices rose more rapidly than they had last nine months ago. “The main cause of this acceleration is probably rising labor costs as workers assert their bargaining power in the form of above-average wage demands,” said de la Rubia.