In a prior Supply Chain Matters Global Supply Chain Assessment commentary earlier this week, we surveyed reported global wide PMI indices for August 2023, along with implications.

For the specific region of Europe, we noted that the HCOB Eurozone Manufacturing PMI® report for August was headlined with plummeting new orders rates and rapidly depleting backlogs of work across the region. The four largest European manufacturing economies, namely Germany, France, Italy and Spain, collectively remained at production contraction levels.

However, in this add-on side panel posting we wanted to add additional backdrop to specifically Germany, considered to be the prime workhorse and leading indicator of the European manufacturing sector, particularly concerning industrial, chemical, automotive and intermediate component goods.

In late May we noted for readers that the German economy and manufacturing sector slid into a recognized state of economic recession. Reportedly, the European Union barely avoided falling into recession after the bloc’s statistical agency reported that collective output rose at an annualized rate of 0.3 percent in Q1-2023, after declining by 0.2 percent in Q4-2022.

The reported HCOB Germany Manufacturing PMI® for August was headlined with output levels falling at the fastest rate since May 2020, the height of the past global wide Covid-19 pandemic. The reported and meager PMI value of 39.1 for August was only slightly better than the July value of 38.8, and attributed solely to an improvement in the supplier delivery sub-index. New orders reportedly continued to fall sharply in August, with the state of decline noted as the fastest rate in three years.

Bloomberg reported this week that German factory orders had plummeted in July, declining by 11.7 percent from that of June, and far worse than economists were expecting. Further noted was the country was “on track to show the worst economic performance in the Group of Seven industrialized nations this year as the toxic combination of weak Chinese demand and an energy crisis cripple the manufacturing sector

But, amid all of this concern Supply Chain Matters took special note of an accompanying commentary to the reported HCOB Germany August PMI data provided by Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank:

The darkest hour is just before dawn. This may be the situation the German manufacturing sector is in. To be sure, output falling at the steepest rate since 2020 doesn’t seem to provide hope in any way. However, the pace of destocking of inputs has slowed a little bit and the deterioration of new orders has stabilised. At the same time, companies continued to be reluctant to make substantial job cuts. It looks as if the manufacturing sector is starting to bottom out, even though this process will take a while.”

The above from our lens is a pragmatic way to view consistently troubling data- that the worst is behind, and that recovery will take added time.

But reality might seem to indicate that German manufacturers need to continue to pivot from the high dependence on China and perhaps take advantage of the new manufacturing investment underway in regions such as India, Vietnam, Mexico, the United States and other regional areas.

We trust that German ingenuity and adaptability remains a constant as is the country’s catalyst for manufacturing activity growth at some point in the not too distant future.


Bob Ferrari

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