Downturn in German manufacturing suffers fresh setback, PMI shows

FILE PHOTO: Car bodies are lifted at "Factory 56", one of the world's most modern electric and conventional car assembly halls of German carmaker Mercedes-Benz, in Sindelfingen near Stuttgart, Germany, March 4, 2024. REUTERS/Wolfgang Rattay/File Photo

By Maria Martinez

BERLIN (Reuters) - The downturn in Germany's manufacturing sector, which accounts for about a fifth of Europe's biggest economy, experienced a fresh setback in June as output and new orders declined at a faster pace, a survey showed on Monday.

The HCOB final Purchasing Managers' Index (PMI) for German manufacturing fell to 43.5 in June from 45.4 in May, confirming a preliminary flash estimate and remaining below the 50 level that separates growth from contraction.

"The accelerated fall in new orders and especially export orders indicates that we will have to wait some more months until a recovery in the manufacturing sector can be seen," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

One likely explanation for the weak exports orders is increasing competition from China, which is ramping up its exports worldwide due to sluggish domestic demand, he added.

"This situation creates a double whammy for German exporters," de la Rubia said, noting firms were facing fewer exports to China at the same time as heightened competition from Chinese products, especially in emerging markets.

The destocking cycle showed no signs of turning as firms reported deepening declines in both pre- and post-production inventories.

However, companies were more optimistic about the future than they were in May, with sentiment hitting the highest since February 2022.

Anecdotal evidence highlighted hopes of a pick-up in exports, increased investment and a general improvement in economic conditions over the next 12 months.

On the price front, demand weakness continued to put downward pressure on both input costs and factory gate charges. However, the respective rates of decline did ease slightly, the survey showed.

(Reporting by Maria Martinez; Editing by Christina Fincher)