Record dive in German business activity shows ‘shocking’ coronavirus impact: PMI

(C) Reuters. FILE PHOTO: Employees of German car manufacturer Porsche work on a Porsche 911 at the Porsche factory in Stuttgart-Zuffenhausen

BERLIN (Reuters) – Germany’s private sector recession deepened in April as services and manufacturing suffered record falls in output due to the coronavirus outbreak and measures to contain it, a survey showed on Thursday.

IHS Markit’s flash composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services sectors that together account for more than two-thirds of the economy, plunged to 17.1 from 35.0 the previous month.

It was the lowest reading on record and compared with a Reuters poll of analysts who had predicted a much smaller drop to 31.0.

IHS Markit economist Phil Smith said the April survey revealed the full effects of the pandemic and subsequent lockdown on Germany’s economy, with business activity across manufacturing and services falling at unprecedented rates.

“Compared to a low of 36.3 during the financial crisis, the headline PMI’s reading of 17.1 paints a shocking picture of the pandemic’s impact on businesses,” Smith said.

The services sector was hit the most by the lockdown. The PMI sub-index for business activity in services plummeted to a record low of 15.9 after 31.7 the previous month.

Smith said service providers bore the initial brunt of the virus containment measures, but plunging demand and supply constraints had also caught up with manufacturers.

The PMI for manufacturing fell to 34.4 from 45.4 in March.

The survey showed that employment fell much less than output, an effect that Smith based on Germany’s Kurzarbeit scheme for reduced working hours that enables companies to keep employees despite a lack of work and incoming orders.

“Still, redundancies and contract cancellations have led to a record drop in workforce numbers as firms look to cut costs and position themselves for a hard slog in the months ahead,” Smith added.

The increased job uncertainty is expected to curb consumer spending in the coming months, which could complicate the economic recovery once the coronavirus is brought under control.