Chart of the week
Although October’s manufacturing PMI has inched up from its September low, 42.1 is a level that clearly indicates contraction and had not been seen since 2009.
That said, September’s manufactured goods orders are sending a slightly more positive message, posting a monthly rise of 1.3%. When volatile components are excluded, the number increases to 1.5%, in line with the stable pattern of recent months at levels seen in 2015–16. Capital goods orders have been contributing significantly to the rise.
September’s drop in industrial output creates a real risk that third-quarter growth will be negative, following a contraction in the second quarter.
Although the PMI new orders component remains very low, October’s IFO index revealed a more marked upturn. This upturn could gain pace given the more positive outlook in terms of both Brexit, with a lower probability of a no-deal exit, and the US-China trade war, with an agreement appearing more likely.
If manufacturing activity stabilises, as the upturn in orders perhaps suggests it could, then this will be very good news indeed for the German economy.
The opinion expressed above is dated 7 November 2019, and liable to change.
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