Strong growth of German manufacturing maintained in March

March’s RBS/BME Purchasing Managers’ Index® (PMI®) survey signalled a further robust improvement of the German manufacturing sector, with output, new orders and employment all continuing to rise. Sector data pointed to a broad-based improvement across all three market groups monitored by the survey, with investment goods producers recording a particularly strong performance. However, the seasonally adjusted RBS/BME Purchasing Managers’ Index® (PMI®) fell slightly for a third month running and, at 56.9 in March, registered its lowest reading since February 2006. The latest fall in the headline PMI largely reflected slower output and new order growth. Nevertheless, the PMI remained above the critical 50.0 value for a nineteenth consecutive month in March.

Higher levels of output were again driven by increased new order inflows and reflected efforts to slow backlog accumulation in the sector. Panel members suggested that favourable economic conditions and the launch of new products had contributed to a sharp expansion of incoming new business in March.

Anecdotal evidence indicated that new order growth had been supported by high levels of demand from both foreign and domestic clients. A number of German manufacturers suggested that strong demand from Asia had contributed to a robust improvement of new orders from abroad. Rising levels of new business led to a robust increase in outstanding work. Further backlog accumulation encouraged job creation in the German manufacturing sector. March’s broad-based increase in employment was also driven by the launch of new products and ongoing company expansion plans. The March survey pointed to a further month of strong input price rises, driven by higher raw material costs (particularly for metals). A sharp acceleration of input prices placed pressure on German manufacturers’ profit margins and encouraged them to raise factory gate prices. Firms indicated the second-highest increase in charges since output prices data were first collected in September 2002.