EMI: Drop in orders and skyrocketing energy prices cause industry to shrink

by David Fleschen

The situation in German industry deteriorated further in September. This is signalled by the seasonally adjusted S&P Global/BME Purchasing Managers' Index (EMI), which currently slipped further into the red and stood at 47.8 points - down from 49.1 in the previous month - its lowest level since June 2020. The slide in new orders continued, while massively rising energy prices further fuelled cost inflation, S&P Global informs.

Due to better availability of some raw materials, output contracted at the slowest pace in three months. However, this did not prevent the business outlook from plunging to its lowest level since May 2020, as high inventories of finished goods in many places and uncertainties around energy supply provided little confidence about future growth.

"The September data show a firming downward trend in manufacturing in Europe's largest economy. More and more industrial companies are suffering from falling demand as well as rising energy prices, which are increasing cost pressure," emphasised Gundula Ullah, Chairwoman of the Board of the German Association of Materials Management, Purchasing and Logistics (BME), in Eschborn on Friday.

"All signs point to recession. While Germany was still able to come up with a mini-growth in the second quarter, it is now obvious that the energy crisis will lead Germany into a recession", commented Dr. Gertrud R. Traud, Chief Economist of Helaba Landesbank Hessen-Thüringen, on the current EMI data on Friday at the request of BME. High inflation rates unsettled consumers and producers; some of them would not be able to cope. "Fortunately, the gas levy could still be averted. But even with the gas price brake, the outlook remains weak. High costs, low demand, rising interest rates: these are the ingredients of a recession. It is to be hoped that not only support packages will be put together, but also that the energy supply will be expanded. There must be no ideological blinkers. Nuclear power and fracking from Germany should be part of this," the Helaba bank director added in her statement for the BME.

"Recession with notice: as in the Corona phase, the reason for and timing of the recession are already known in advance; this at least allows companies and politicians to prepare as well as possible," Dr Ulrich Kater, chief economist at DekaBank, told BME on Friday.

"The high energy costs and the great uncertainty of many companies regarding the future energy supply are not only dampening production, but also weighing on demand for industrial goods. In view of the cooling global economy, no positive impulses can be expected from abroad at present," DIHK economic expert Jupp Zenzen told BME on Friday. The situation is aggravated by the fact that the supply chain problems are not yet over. Zenzen: "We are heading straight for a recession."

Dr Heinz-Jürgen Büchner, Managing Director Industrials, Automotive & Services at IKB Deutsche Industriebank AG, gave the BME the following assessment of the latest development of the EMI sub-index for purchasing prices: "In the course of September 2022, there were again slight downward corrections in most commodity prices. However, many of them seem to have bottomed out in the meantime. For example, as a result of falling zinc prices, galvanised sheet became significantly cheaper, while wire rod went practically sideways as a result of tight supply. Crude oil seems to have found its current base. Above all, however, it was surprising that the gas price reacted only very briefly to the attack on the Nord Stream pipelines. However, natural gas had already stopped flowing through in the weeks before. How the gas price brake will ultimately affect this can only be assessed once it has been finalised for industrial companies as well. The supply reduction in the USA due to the effects of Hurricane Ian should not have a significant impact on the European price.

Source: BMIwww.bmi.de, Photo: Fotolia

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