German Industrial production suffered from massive export losses in May

Business conditions in German industry deteriorated further in May. Demand, especially from abroad, fell even more sharply, reports the US financial services provider S&P Global. The sharp decline also affected production, which shrank for the first time in four months.

The HCOB Purchasing Managers' Index Germany (EMI) slid even deeper into the red in May. At 43.2 points, it was below the April value (44.5) and at the same time at its lowest level in three years. The worsening situation in the manufacturing sector is primarily due to the continuing slump in demand in all sectors. EMI survey participants cited a number of reasons for this, such as their customers' destocking, a weakening willingness to invest in the face of less favourable credit conditions, an uncertain business outlook and tight budgets in many places.

"The current EMI data prove it: German industry is in crisis. This raises fears that the manufacturing sector in Europe's largest economy is in for a difficult few months," emphasises BME Managing Director Dr Helena Melnikov. Germany as a foreign trade nation was particularly affected by the significant drop in new export orders in May. On the other hand, the downward trend in costs that companies have been experiencing since February is encouraging. Purchasing prices continued to fall thanks to lower demand for raw materials and production materials.

"Germany has experienced two quarters of declining national product. This is commonly regarded as a recession", comments Dr. Gertrud R. Traud, Chief Economist at Helaba Landesbank Hessen-Thüringen, on the current EMI data at the request of BME. Looking forward, the signals are double-edged. The supply chain problems have disappeared, the warehouses are full, but demand is weakening. It is therefore not surprising that the EMI has fallen further recently. "It is to be hoped that the easing of price pressures will lead to the interest rate hike cycle coming to an end, so that the recession also comes to an end. However, there is a risk that the ECB will try to compensate for its interest rate turnaround, which was initiated far too late, with overly restrictive monetary policy," the Helaba bank director added in her statement for BME.

"The restrictive monetary policy is visibly working its way through the global economy. Companies are feeling the effects of this, particularly in the form of meagre incoming orders," Dr Holger Bahr, Head of Economics at DekaBank, told BME.Dennis Rheinsberg, Director - Energy & Industrials at IKB Deutsche Industriebank AG, gives the BME the following assessment of the latest development of the EMI sub-index for purchasing prices: "The development of purchasing prices fits in with the impression that inventories are increasingly being reduced in processing and that the economic slowdown is having an effect. The prices of almost all major raw materials listed on the stock exchange also declined in May. The comparatively low gas price level for short-term deliveries is also remarkable. Nevertheless, many industries continue to suffer from high energy costs."

Source: BME, Photo: Fotolia