Germany's private sector activity contracted for a second consecutive month in May as the Iran war put the brakes on the country's economic recovery, hitting demand and driving up prices, a survey showed on Thursday. The composite flash Purchasing Managers' Index for Germany, compiled by S&P Global, rose slightly to 48.6 in May from 48.4 in April, above the expectations of analysts polled by Reuters that it would be at 48.4. However, the composite index remained below the 50 mark, signalling contraction. A reading above 50 indicates growth. The composite index tracks the services and manufacturing sectors that together account for more than two-thirds of the euro zone's largest economy.
"With the flash PMI data for May signalling a second consecutive monthly decrease in business activity, the German economy is on course to contract in the second quarter of the year," said Phil Smith, economics associate director at S&P Global Market Intelligence. The decline was led by the service sector, where business activity decreased for the second straight month, albeit at a slower pace than that seen in April. The flash PMI for that sector rose to 47.8 in May from 46.9, but remained below the 50 mark. There was a stalling of the manufacturing sector, with the corresponding index at 49.9, down from 51.4 in April. "In manufacturing, the boost that we saw from efforts to build stocks and get ahead of price increases and supply shortages appears to be fizzling out," said Smith.
Firms reported a further intensification of cost pressures midway through the second quarter, with manufacturers and services firms alike facing accelerating rates of input price inflation.
The disruption from the effective closure of the Strait of Hormuz continues to filter through to prices, with input cost inflation showing a further acceleration due to the knock-on effects of higher energy prices and supply shortages," Smith said. Businesses reported a reduction in demand for goods and services in May, citing hesitancy among customers due to heightened levels of economic and geopolitical uncertainty as well as a squeeze on spending power from rising prices.
