October 24, 2019 / 9:08 AM / 22 days ago

Private sector job losses bode ill for German hopes of end-year rebound - PMI

BERLIN (Reuters) - Employment in Germany’s private sector fell for the first time in six years in October, a survey showed on Thursday, suggesting that a third-quarter slowdown in Europe’s largest economy could stretch into the closing months of the year.

FILE PHOTO: Mechanic staff work on the production line of Volkswagen e-Golf in the Glaeserne Manufaktur plant in Dresden, Germany May 8, 2018. REUTERS/Matthias Rietschel/File Photo

Markit’s flash Purchasing Managers’ Index (PMI) survey showed that the slight fall in employment was mainly the result of job losses in the manufacturing sector, where staffing numbers fell to their lowest level in almost 10 years.

The slowdown in Germany’s export-dependent manufacturing sector, in recession due to trade conflicts and uncertainties linked to Britain’s planned departure from the European Union, is leaving a bigger mark on services, the survey also showed.

Job creation in the services sector fell to its lowest level in 3-1/2 years, IHS Markit said.

“Hopes of a return to growth in Germany in the final quarter have been somewhat dashed by the PMI numbers, which show business activity in the euro zone’s largest economy contracting further and underlying demand continuing to soften,” said Phil Smith, principle economist at IHS Markit.

“Manufacturing remains the main weak link, though here there are some signs of encouragement with rates of decline in production and new orders easing and business confidence improving to a four-month high,” he added.

IHS Markit’s flash composite PMI, which tracks the manufacturing and services sectors that together account for more than two-thirds of the economy, rose to a two-month high reading of 48.6, from 48.5 in September.

The reading was below the 48.8 consensus forecast in a Reuters poll of economists and remained below the 50 mark that separates growth from contraction for the second consecutive month.

The flash manufacturing PMI remained in contraction territory at 41.9, slightly higher than September’s 10-year low reading of 41.7.

The flash services PMI by contrast fell to a 37-month low of 51.2 from 51.4 in September, as new business in the sector fell at the fastest pace since June 2013, IHS Markit said.

The German economy is expected to contract for the second successive quarter in the July-September period, which would mean a technical recession.

The government expects the economy to grow by 0.5% this year and has cut its economic growth forecast for 2020 to 1%. It has resisted calls for a stimulus package to reverse the slowdown, saying the economy is not facing a crisis.

Economists say the forecasts do not factor in a possible escalation in the trade conflict between the United States and the EU and are based on the scenario that Britain will leave the bloc in an orderly manner.

If any of those risks becomes reality, the outlook for Germany would be grimmer, they say.

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Reporting by Joseph Nasr; Editing by Toby Chopra

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