The Week Ahead (Nov 4-8): Recession Looms Over Germany As Engineering Hits A Wall

Market participants in the week ahead will receive an update on Germany’s manufacturing sector, amid fears the EU’s growth engine has sputtered into recession.

The familiar refrain of European headwinds, including U.S.-China trade tensions, uncertainties over an ultimate resolution to Brexit, as well as trade-related tariffs and revised auto emissions standards, has generally battered Germany’s industrial sector and export health.

German business activity has been languishing, alongside weak services growth, low levels of factory output, declining new orders and a deterioration in parts of its labor market.

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Germany’s Association for Supply Chain Management, Procurement, and Logistics (BME) noted that “the manufacturing industry of Europe’s largest economy is in a worse state than it has ever been since the global financial crisis.”

The IHS Markit/BME-Einkaufsmanager-Index (EMI) fell by 1.8 points to 41.7 in September compared to the previous month, marking the ninth consecutive month of contraction, and its lowest level since June 2009.

BME said the decline in order intake was the main reason for the fall in production rates in September, according to its survey participants. It continued that many of the managers surveyed associated this with “a high degree of uncertainty, leading to cancellations, postponements or reductions in orders.

“The automotive industry and mechanical engineering were particularly affected.”

Meanwhile, industrial job cuts accelerated in September, reaching levels not seen since January 2010.

A more recent IHS Markit flash Eurozone Purchasing Managers Index (PMI) for October signaled a second straight month of declining German business activity, underlining the “worst period of decline” since 2012.

According to IHS Markit, new orders continued to “drop sharply, and employment fell for the first time for six years.” Also, the rate of loss of factory output “eased but remained among the steepest since 2009,” while services growth was “the weakest since September 2016, as new business fell at the steepest rate for over six years.”

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