EMI: risk of industrial recession grows in September

The IHS Markit/BME-Einkaufsmanager-Index (EMI) fell by 1.8 points to 41.7 in September compared to the previous month. This means that the important economic barometer for the economic situation in the manufacturing sector in Germany is now moving below the 50 point reference line, from which growth is signalled, for the ninth month in a row.

The rapid decline of German industry could not be stopped in September either. This makes one thing clear: the manufacturing industry of Europe's largest economy is in a worse state than it has ever been since the global financial crisis. This is shown by the current survey results of the IHS Markit/BME-Einkaufsmanager-Index (EMI). The seasonally adjusted PMI – a snapshot of the manufacturing sector in Germany derived from indicators for incoming orders, production, employment, delivery times and starting material stocks – stood at 41.7 points in September after 43.5 points in August. This is the lowest value since June 2009, according to the British financial services provider IHS Markit in London. At the same time, the EMI is below the growth threshold of 50.0 points for the ninth month in a row. Once again, declines in production and new orders accelerated. The job cuts were more severe than at any time in almost ten years. “The current EMI September data are worrying and do let anything good expect for the further economic development in Germany. Local companies have successfully defied the numerous geopolitical crises for a long time. In the long run, these disruptive factors are obviously poisonous for companies' willingness to invest and also cause too much psychology in the markets,” emphasized BME Managing Director Dr. Silvius Grobosch in Eschborn on Friday. “Germany is in an industrial recession and there is no end in sight. This can be seen from the latest EMI, which has fallen once again,” commented Dr. Gertrud R. Traud , Chief Economist at Helaba Landesbank Hessen-Thüringen, on Friday in response to a BME enquiry about the current EMI data. The trade war, the automotive crisis and a sharp decline in the competitiveness of German industry due to higher unit labour costs as well as regulation and bureaucracy had a negative impact. The first companies filed for insolvency and the labour market in industry was also affected, even though most companies tried to hold on to their employees for as long as possible due to the shortage of skilled workers. “In this environment, no more selective measures are helpful. A comprehensive, tax-relief tax reform is the order of the day – and not tax increases,” the Helaba bank director concluded. “Germany is in the longest industrial recession in all of Germany's history, which, however, with industry accounting for 25 percent of Germany's gross domestic product, only leads to zero overall economic growth,” Dr Ulrich Kater , Chief Economist at DekaBank, told the BME on Friday. A real recession with a deep slump in economic output and a noticeable deterioration in the labour market is not yet to be expected. However, there is a risk that the industrial recession will continue to have an increasing impact on the still robust parts of the economy with increasing duration and depth, thus turning into a genuine recession. “Falling production, falling prices and shorter delivery times confirm this – the downturn in industry is continuing. In addition to capital goods and intermediate goods, manufacturers of consumer goods are now also recording a decline in the EMI,” said Katharina Huhn, head of the Department for Business Cycles, Growth and Corporate Surveys at the DIHK. Although business prospects improved slightly, they are still clearly negative. This was primarily due to the continuing tensions in the foreign trade environment. “In order to regain momentum, companies in this country need affordable energy, faster planning and approval procedures, faster, digital infrastructure expansion and a competitive tax system,” continued Huhn.

On Friday, Dr. Heinz-Jürgen Büchner , Managing Director Industrials, Automotive & Services of IKB Deutsche Industriebank AG, told the BME about the latest development of the EMI sub-index purchasing prices: “Especially in the second half of September, metallic raw materials came under considerable pressure due to fears of further escalating trade disputes between the USA and its partners. The missile attack on Saudi Arabia's largest crude oil processing company led to a temporary increase in oil prices, which led to a higher monthly average world commodity price index in September 2019. We see a number of commodities bottoming out. Copper, zinc and aluminium in particular will show a supply deficit in 2019. However, the newly announced US tariffs on European imports could have a negative impact.”

The development of the EMI sub-indices at a glance:
Industrial production: At the end of the third quarter, production continued to decline. The corresponding seasonally adjusted sub-index fell even lower below the reference line of 50.0 points and was at its lowest level since July 2012. In the consumer goods sector, where strong growth was still recorded in August, a minus was now recorded. Meanwhile, declines in intermediate goods and capital goods continued.

Total Order Intake/Exports: The decline in order intake was the main reason for the decline in production rates in September, according to survey participants. Many of the managers surveyed associated this with a high degree of uncertainty, leading to cancellations, postponements or reductions in orders. The automotive industry and mechanical engineering were particularly affected. The drop in new orders increased for the third month in succession and was higher than at any time since April 2009. Export orders from German manufacturers also shrank sharply in September, with the downward trend continuing for thirteen months now. The rate of decline remained unchanged compared to August. In the sub-sectors, manufacturers of capital goods recorded the sharpest decline, mainly due to lower sales figures in Asia, Europe and the Middle East. Employment: Industrial job cuts accelerated in September, reaching levels not seen since January 2010. The significant decline reflected job cuts in all three sub-sectors of the industry. In many cases, the non-renewal of fixed-term contracts reduced the number of employees. In addition, reports of the introduction of short-time working at many manufacturers were also frequent.

Purchasing/sales prices: Average purchasing prices fell for the fifth consecutive month in September. Although the inflation rate slowed somewhat compared to August, it was still the second fastest since April 2016. Around a quarter of the survey participants registered lower purchasing costs. In most cases, this was attributed to fundamentally lower demand and thus stronger competition among suppliers. Chemicals, plastics and metals (especially steel and aluminium) in particular became cheaper.
The combination of growing competition for new orders and falling purchase prices led to the third consecutive decline in sales prices. In addition, the seasonally adjusted subindex continued to decline, signaling one of the sharpest price reductions in sales since the end of 2009.

Outlook for the year: At the end of the third quarter, the majority of managers surveyed also assessed the business outlook as clearly negative. Although the corresponding subindex improved slightly compared with August, it remained at one of the worst levels since July 2012. Uncertainty remains the main concern, particularly with regard to trade disputes and Brexit. The outlook is also clouded by the weakening automotive industry and the slowdown in the domestic and global economy. About the EMI: The IHS Markit/BME Purchasing Managers 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/managing directors of the manufacturing industry in Germany (selected 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).