EMI: Industrial production accelerated decline in March
The IHS Markit/BME Purchasing Manager Index fell to its lowest level since July 2012 in the month under review. It currently stands at 44.1 after 47.6 in February, an 80-month low. For the experts, one thing is certain: an end to the slide is not in sight for the time being.
At the end of the first quarter, the manufacturing sector in Germany slipped even deeper into the contraction zone. As the latest survey results on the IHS Markit/BME Purchasing Managers Index (EMI) show, production, new orders and export orders fell again more sharply. In addition, sluggish demand and the uncertain business outlook had an impact on companies' recruitment policies. For the first time in three years, employment declined slightly. The seasonally adjusted EMI dropped significantly again in March, closing at 44.1 points after 47.6 in February. This marks the lowest level since July 2012, when the euro zone suffered from the sovereign debt crisis and the threat of recession.
“After the EMI has slipped below the magic 50-point threshold for the third month in a row, we must prepare ourselves for the incipient downturn”, emphasized Dr. Silvius Grobosch, Managing Director of the Bundesverband Materialwirtschaft, Einkauf und Logistik e.V. (Association for Supply Chain Management, Procurement and Logistics/BME) in Eschborn on Thursday. “The fact that the average purchase prices hardly rose in March makes us feel positive. Falling industrial metal prices seem to have made a significant contribution to reducing costs,” added Grobosch.
“According to the EMI, the mood in German industry has worsened again recently. Based on historical experience, this should be the lowest point,” said Dr. Gertrud R. Traud, Chief Economist at Helaba Landesbank Hessen-Thüringen, commenting on the current EMI data on Thursday at the request of the BME. The chances for an imminent recovery are high. Traud: “Although the British still seem undecided about the manner of the Brexit, they obviously want to avoid an unregulated withdrawal from the European Union in any case.”. The trade talks between the US and China pointed in the right direction. The expansive monetary and fiscal policy measures in the People's Republic were already beginning to bear fruit in terms of economic indicators there. The central banks on both sides of the Atlantic had signalled that they would refrain from raising interest rates. “There is therefore hardly anything that stands in the way of an upswing in the near future. The stock markets are already anticipating this scenario,” the Helaba bank director concluded.
“Despite the poor figures, this is not a free fall; the domestic economy remains strong and the data for industry should also improve in the coming month,” said Dr Ulrich Kater, Chief Economist at DekaBank, to the BME on Thursday.
“The challenges for industry are growing. Global uncertainty has increased once again in recent weeks – particularly with regard to Brexit. This makes it all the more urgent to improve the general economic conditions in Germany. In order to regain momentum, we should turn even more intensively to issues such as the expansion of the digital infrastructure, rising energy prices and corporate tax reform,” Ilja Nothnagel, member of the DIHK executive board, told the BME on Thursday.
Dr. Heinz-Jürgen Büchner, Managing Director Industrials, Automotive & Services of IKB Deutsche Industriebank AG, told the BME: “Although there are increasing signs of an economic slowdown, commodity prices have recently tended to strengthen. In the case of crude oil, the crisis in Venezuela is having a negative impact, while production in Iran has stabilised. After the dam burst in Brazil, iron ore prices moved sideways at the level reached. Scrap prices rose as a result of tight supply. This puts pressure on crude steel prices, which is likely to result in price increases in the medium term.”
The development of the EMI sub-indices at a glance:
Industrial production: In March, manufacturing output shrank again. The decline was more pronounced than at any time since July 2012. All three sub-sectors covered by the survey recorded lower production rates. Manufacturers of intermediate goods performed worst, followed by producers of consumer goods.
Total order intake/exports: The pace of decline in order intake has intensified once again for both large companies and small and medium-sized enterprises. The subindex slipped even further below the growth threshold of 50.0 points and was at its lowest level since April 2009. Producers of intermediate goods and consumer goods recorded particularly strong declines in new orders. This was primarily due to the continuing uncertainty in the industry, which impacted sales, and the continuing sluggish demand in the automotive industry.
The decline in total order intake reflected, at least in part, the renewed contraction in foreign demand. This was the seventh consecutive drop in exports in March, which was also higher than at any time in almost a decade. Wherever there was a contraction (almost a third of respondents), this was attributed to lower sales in the UK, continental Europe and Asia.
Employment: The seasonally adjusted sub-index plummeted in March and showed a minus for the first time in three years. This was the largest decline since the beginning of the survey in 1996. Although the reduction in staff numbers was only marginal, it contrasts sharply with the solid growth rates of recent months. Slight job cuts by manufacturers of consumer goods and intermediate goods more than compensated for minimal growth in the capital goods sector.
Purchasing/sales prices: Average purchase prices barely rose in March. For the fifth time in a row, the inflation rate weakened and was lower than it had been for more than two and a half years. Some respondents said they had paid more for some electronic parts and crude oil-based products. However, the main reason for reducing costs was lower metal prices, especially steel.
The industrial supply price inflation rate fell to a 28-month low in March, partly due to lower cost pressure and declining corporate price power. A look at the sub-segments reveals different developments. A strong increase in selling prices in the consumer goods sector was offset by only a slight increase in the capital goods sector and a significant reduction in prices in the intermediate goods sector.
Outlook for the year: The pessimism of purchasing managers with regard to production prospects within a year increased again in March. The subindex fell even deeper into the negative range to its lowest level since November 2012. The economic downturn, uncertainties regarding Brexit and future trade relations, as well as the ongoing problems in the automotive sector, continue to cause headaches in the management levels of industrial companies.
About the EMI: The IHS Markit/BME-Einkaufsmanager-Index (EMI) provides a general overview of the economic situation in German industry. The index has been published under the auspices of the BME since 1996. It is compiled by IHS Markit, a provider of corporate, financial and economic information headquartered in London, and is based on a survey of 500 purchasing managers/managers of the manufacturing industry in Germany (selected as representative of the German economy by sector, size and region). The EMI is modelled on the US-Purchasing Manager´s Index (Markit U.S.-PMI).