Head of Macroeconomic Research
Summary: Christine Lagarde was right when she said that economic stabilisation is looming. The flash January German PMI showed that contraction in the manufacturing sector slowed.
Germany January Manufacturing PMI is out at 45.2 vs forecast at 44.5. The headline index is at a 11-month high and the output index is at a 5-month high of 45.3 (versus prior 44.9). This modest rebound is mostly fueled by the improvement in global trade and reduced geopolitical risk. In details, Germany export growth to China and Turkey, two key trade partners, is back in positive territory, respectively at 2% YoY and 2.6% YoY in past December. It clearly indicates that the German economy is slowly getting out of the woods.
The service sector is also rebounding at a 5-month high of 51.1 vs prior 50.2. The output grew for a second month and overall orders rose for the first time in seven months. Looking at unemployment, it is also well-oriented, reaching at 5-month high.
Overall, the latest German data are rather positive and the risk of recession is receding. We expect that the economy will continue to be stimulated by strong consumption this year along with public investment and better global trade. However, structural challenges related to migration, ageing and the transformation of the auto sector (which represents 14% of GDP) keep pushing potential GDP growth lower in the long run.
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