German business confidence extends decline — PMI

German business is considerably gloomier than previously thought with confidence at its lowest ebb in more than 18 months, the final reading of a survey of business executives showed on Friday.

The purchasing manager’s index for the services sector — part of a wider closely watched survey used as an early indicator of the health of the economy — fell to 53 in April, down from 53.9 in March and weighing down the wider index. A flash reading late last month had suggested the index had risen to 54.1.

April’s reading was the lowest since September 2016, driven by a drop in new orders and rising concerns about the outlook for the industry. The headline reading for the composite index also dipped to a 19-month low at 54.6, down from March’s 55.1 and below a flash estimate of 55.3.

While the gauge remained above the 50 level that separates expansion from contraction, sentiment among German executives has pulled back sharply from the seven-year high reached near the beginning of the year. The index has held above 50 fore almost five years, clocking in at an average of 54.3.

“The final PMI reading for services activity changes the picture of the performance of the German economy at the start of the second quarter,” economist Phil Smith of IHS Markit said.

“Preliminary ‘flash’ data had shown output growth stabilising after hitting an eight-month low in March, but in fact there was a further loss of momentum across the private sector in April as the slowdown seen in the final data for services more than offset an upturn in goods output.”

The German economy boomed in 2017, with a clutch of indicators touching record highs. But the economic recovery has stumbled since the start of the year. Recent data had suggested the decline was stabilising, and could be dismissed as a passing phase.

“The EZ PMIs have declined significantly in recent months, but the swoon isn’t extraordinary in the context of the overall trend since 2012. The headline indices also still signal robust GDP growth,” said Claus Vistesen at Pantheon Macroeconomics.

“That said, markets care more about the direction than the level, and further weakness in coming months would fuel speculation that the ECB will backtrack on its plan to end QE later this year, let alone begin to raise rates next year.”

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German business confidence extends decline — PMI

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