EMI: German industrial production also contracted in August

The manufacturing sector remained in the contraction zone in August. The seasonally adjusted S&P Global/BME Purchasing Managers' Index (EMI) stood at 49.1 points in the month under review, slightly worse than in July (49.3). In addition, the EMI remained below the psychologically important 50.0 reference line for the second month in a row, following two years of previous growth.

Many manufacturers reacted to the lower order intake by cutting back on production, while for others the ongoing shortage of materials led to delays. As a result, overall production contracted again, but less sharply than in July and nowhere near as much as the number of new orders.

"The EMI continued its negative trend in August and fell further - albeit only slightly - below the threshold of 50.0," emphasised Gundula Ullah, chairwoman of the board of the German Association of Materials Management, Purchasing and Logistics (BME), in Eschborn on Monday. Apparently, the persistent shortage of raw materials and production materials is repeatedly leading to sensitive disruptions in the manufacturing processes of some companies. At the same time, cost pressure remains high in many companies due to rising energy costs.

"The EMI signals that the next few months will be difficult in German industry: rising costs, declining demand - stagflation is becoming a reality. In the third and fourth quarters, we expect a decline in gross national product of 0.3 per cent compared to the previous quarter," Dr. Gertrud R. Traud, chief economist at Helaba Landesbank Hessen-Thüringen, commented on the current EMI data on Monday at the request of BME. This would put Germany into recession. "This is our base scenario. In the negative scenario with a complete gas freeze, the decline would be even more pronounced," the Helaba bank director added in her statement for BME.

"We now no longer have a supply problem, but a demand problem. All in all, the picture is becoming clearer that Germany will slip into a mild recession," Dr Ulrich Kater, chief economist at DekaBank, told BME on Monday.

Dr. Heinz-Jürgen Büchner, Managing Director Industrials, Automotive & Services at IKB Deutsche Industriebank AG, gave the following assessment of the latest development of the EMI sub-index for purchase prices to the BME on Monday: "Even though there was a further drop in prices for several types of steel and some other raw materials in August 2002, there was a clear recovery for some others such as copper or zinc. In some cases a bottom has been reached, also because the unchanged low stock market inventories limit the price decline. In addition, there is no security of supply for many raw materials. Transport problems continue to be a burden. Overall, a slight price increase is to be expected until the end of the year.

Source: BME, Photo: Fotolia