September 21, 2012
The German PMIs recorded a surprisingly strong bump in September. This reversed some of the “undershooting” of the survey relative to hard data as the latest releases like exports, industrial production and new orders all were better than the very low PMIs would have suggested. There also might have been a positive effect from the latest political decisions in EMU (German constitutional court decision on ESM / ECB’s announcement of OMT) that reduced the negative tail risks.
The composite PMI rose to 49.7 from 47.0 as the services PMI moved into slightly expansionary territory (50.6 vs. 48.3 prev.), while the manufacturing PMI rose from its low levels (47.3 vs. 44.7 prev.) but still points to production decreases. This is much better than the small increases of 0.2 and 0.5 points the market had expected. Also, it is a stark contrast to the 4 point drop in the French composite PMI and the mixed picture provided by the EMU PMIs (composite at 45.9 vs. 46.3 prev.). Due to this development the German composite PMI is again solidly above its EMU counterpart, which is more in line with our expectation of the German economy outperforming the EMU average.
Still, hard data as well as the PMIs point to a slowdown in German GDP growth due to slowing exports and lower investment. This is supported by the low EMU and French PMIs as well as the slowdown in global growth that will weigh on demand for German products. Also, the PMI new orders (44.4 vs. 43.5 prev.) and new export orders (42.0 vs. 39.5 prev.) suggest further falls in demand and industrial production in the coming months despite their most recent improvement.
We expect that in the short-run the on-going austerity in parts of EMU and the slow-down in many important export destinations will outweigh any positive effects of lower tail-risks and keep demand low. We expect German GDP to do not much more than stagnate in H2 2012 and see a negative quarter as possible. Still, with +0.8% in 2012 and 2013 German GDP should fare better than EMU on average (-0.5% and +0.3%).