September 2, 2019 / 8:03 AM / 20 days ago

German manufacturing sector remains in contraction in August: PMI

BERLIN (Reuters) - Germany’s export-dependent manufacturing sector remained in contraction in August, a survey showed on Monday, as weaker demand pushed companies to scale back production and cut jobs.

FILE PHOTO: A steel-worker is pictured at a furnace at the plant of German steel company Salzgitter AG in Salzgitter, Lower Saxony on March 3, 2016. REUTERS/Fabian Bimmer

IHS Markit’s Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of the economy, rose slightly to 43.5, remaining below the 50.0 mark separating growth from contraction for an eight month in a row.

The figure was below a flash reading of 43.6 and close to July’s seven-year low reading.

Lower demand, especially for capital and intermediate goods, was behind the continued weakness in the sector. Manufacturers also cited reduced demand from the car industry, which is facing lower sales.

The survey also showed that sentiment about future output fell to a record low, pointing to pessimism among manufacturers.

As a result, manufacturers sped up job cuts, which reached the fastest rate since July 2012.

“The slump in Germany’s manufacturing sector goes on and, with no light at the end of the tunnel just yet, the number of goods producers cutting staff continues to rise, boding ill for domestic demand,” said Phil Smith, principle economist at IHS Markit.

“Manufacturing is now not only in recession, but the PMI data also point to deflationary forces building with regard to producer prices as supply outstrips demand.”

Data published last week showed a rise in unemployment in August, eroding a pillar of growth that has helped support an economy whose traditionally powerful export engine is weakening and that could well slip into recession in the current quarter.

With its sales abroad hit by a worsening trade climate, a global economic slowdown and an increasingly chaotic run-up to Brexit, the bulk of Germany’s growth momentum is been generated domestically - a dependency that leaves it exposed to any weakening of the jobs market.

Reporting by Joseph Nasr; Editing by Toby Chopra

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