Germany’s private sector expanded modestly in August, led by a rebound in manufacturing, while services cooled to near stagnation. The HCOB Flash Germany Composite PMI from S&P Global rose to 50.9 in August from 50.6 in July, marking a five-month high and topping forecasts of 50.2. A reading above 50 signals growth.
Key takeaways
– Manufacturing remains the driving force behind the uptick. The manufacturing output index climbed to 52.6 from 50.6 in July, its strongest reading in 41 months, supported by a solid rise in new orders—the fastest pace since March 2022—despite a slight dip in export sales.
– Services lagged. The services sector’s activity index eased to 50.1 from 50.6, indicating only marginal growth and the weakest reading in two months.
– Employment trend remains soft. Overall employment in Germany continued to contract, with manufacturing shedding jobs faster than services added hires, continuing a decline that began last year.
– Costs and pricing are edging higher. Both input cost and output price indices rose in August, reversing July’s declines, with the wage-driven rise in services providing a notable source of upward pressure.
– The broader message: resilience amid headwinds. Hamburg Commercial Bank economist Cyrus de la Rubia noted that while gains are modest, the data point to ongoing resilience as Germany navigates U.S. tariff tensions, geopolitical uncertainties, and relatively high long-term interest rates.
What this means for the economy
– A stronger manufacturing pulse could help underpin the economy through the autumn, even as service-sector momentum remains fragile. If manufacturing demand persists and export markets improve, Germany could sustain a steadier growth path.
– Wages and services costs appear to be feeding into higher input prices, which may have implications for inflation dynamics and monetary policy discussions in the near term.
– The mixed picture underscores a transition phase: a manufacturing-led improvement mix with a services-side lull, highlighting the importance of global demand and cost pressures in shaping the outlook.
Additional context and outlook
– The August reading reinforces a narrative of gradual, uneven expansion rather than a broad-based surge. Policy makers and markets will likely monitor whether services regain momentum and whether export demand stabilizes, as these will influence the durability of the current growth trajectory.
– If the manufacturing upturn broadens to other sectors and wage growth stabilizes, Germany’s economy could maintain a modest but positive trajectory into the fall.
Summary
August’s PMI data show Germany’s private sector continuing to expand, driven by manufacturing gains and helped by firmer new orders, even as services stall and employment softens. The mix signals resilience in the near term, with the potential for a steadier path if export demand holds and service activity picks up.
Positive note
Despite headwinds, the economy is displaying staying power with a manufacturing-led lift and improving input costs, suggesting room for cautious optimism as firms navigate the remainder of the year.