Thursday 23rd September 2021 - 08:57 (BST)
Preliminary estimates by Markit economics have shown German manufacturing slowed over September, with Europe’s largest economy posting a PMI reading of 58.5. This was well below the market expectation of 61.5 and a significant retreat from Augusts reading of 62.6.
A major contributing factor to the fall is the sharp rise in producer prices. Figures from another German statistics office, Destatis, showed yearly producer prices within the country rose by 12% over August – the biggest increase since 1974 and largely driven by soaring energy prices. A 24% increase in the cost for natural gas along with a 17% increase for intermediate goods has put further pressure within the manufacturing sector still reeling from the fall-out caused by coronavirus.
Supply chain bottlenecks and increased freight prices across the globe have also forced businesses and governments to re-assess their logistics strategy, with Germany better placed to serve mainland Europe during the crisis. However, German exports to China have been badly effected and attentions are now turning to the all-important Christmas shipping season, with further shortages now predicted.
The news follows a reduction in 2021 gross domestic product (GDP) growth projections by Germany’s Ifo economic institute. They now see GDP growing 2.5% this year, down 0.8% from their previous forecasts and primarily due to the aforementioned supply chain disruptions along with scarcity of electronic chips.
Attentions now turn to German general elections taking place this weekend, with current Chancellor Angela Merkel stepping down after 16 years in charge. Her Christian Democratic Union party is struggling to win over key demographics with their new leader Armin Laschet and there is a real possibility of a change in the political landscape within Europe’s most important economy.
Traders expect enhanced volatility for any euro denominated cross-pair over the next week, as is usual in the build-up and following major political elections.
