Germany Ends 2024 in Contraction, Manufacturing Plummets

Germany's private sector ended 2024 in contraction for the sixth consecutive month, although the rate of decline slowed slightly due to a modest rebound in services activity, according to the latest HCOB Flash PMI survey data from S&P Global. Manufacturing, however, remained deeply in recession, experiencing substantial job losses. Business confidence improved marginally but remained below historical averages.

The HCOB Flash Germany Composite PMI Output Index registered 47.8 in December, a slight increase from November's nine-month low of 47.2, but still significantly below the 50.0 mark separating growth from contraction. While services activity saw a modest uptick (index at 51.0), this was insufficient to offset a sharp and accelerating decline in manufacturing production (index at a three-month low of 41.7).

"It looks like the German services sector is setting up for a better-than-expected Christmas season," commented Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. "The business activity index bounced back into growth territory after dipping below 50 in November. Businesses also managed to hike their selling prices a bit more than the previous month."

The survey indicated persistent weakness in underlying demand, with new business inflows experiencing their steepest decline since September. The downturn was particularly severe in manufacturing, where new orders fell sharply amid client hesitancy, intense competition, and reduced foreign demand.

December also saw another substantial decrease in backlogs of work, reflecting firms' ability to process orders more quickly than they were received. This led to further job cuts in manufacturing, although the pace of job losses eased slightly. Services employment also experienced a marginal decline, extending the seven-month contraction in overall workforce numbers.

Inflationary pressures intensified in December, with input costs rising at their fastest rate since April. This was driven by a steeper increase in service sector operating expenses and a slower decline in manufacturing purchase prices. Output price inflation also accelerated, reaching its highest level since February.

"What is really catching the eye is the trend in prices in the services sector," de la Rubia noted. "Input price inflation shot up significantly in December, hitting the highest since April. Normally, in a stagnating economy, you would expect disinflationary forces. The fact that this is not happening suggests that old economic rules like 'slower growth means slower inflation' might not apply at the moment."

Despite the overall economic weakness, expectations for output growth in the coming year improved slightly from September's low, though they remained below the long-run average. Firms expressed concerns about political uncertainty, economic sluggishness, and issues within the automotive sector. Sentiment was particularly subdued in the manufacturing sector.