Germany’s private sector sees strongest growth in almost 2.5 years

Investing.com -- Germany’s private sector economy recorded its strongest growth in almost two-and-a-half years at the start of the fourth quarter, according to the latest HCOB Flash PMI data released Friday.

The HCOB Flash Germany Composite PMI Output Index rose to 53.8 in October from 52.0 in September, marking the fifth consecutive month of expansion and the longest growth sequence since the first half of 2023.

The stronger performance was primarily driven by the service sector, where business activity increased at the sharpest rate in nearly two-and-a-half years. Manufacturing production continued to rise for the eighth straight month, though at a slower pace than in September.

New business volumes increased in October after slight declines in August and September, with the rate of expansion being the strongest since April 2022.

For only the second time in over three-and-a-half years, growth in demand was broad-based across services and manufacturing, although manufacturing new orders increased only marginally.

Companies reported higher backlogs of work for the first time since July 2022, ending a 38-month period of falling outstanding work. This increase reflected solid growth at service providers, while manufacturing backlogs continued to decline.

Despite the improved business conditions, employment fell for the seventeenth consecutive month, though the rate of decline slowed significantly and was only marginal. Service providers increased staffing for the eighth time this year, while manufacturers cut workforces at the strongest rate since June.

Input price inflation accelerated for the third consecutive month to reach its highest level since February, primarily reflecting increased service sector operating expenses. Output prices also rose at the quickest rate since February.

Business expectations for the next 12 months remained positive but eased to the weakest level since April. Companies cited concerns about domestic economic weakness, geopolitical tensions, high costs, business relocations, and waning international competitiveness.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, described the data as "an unexpectedly good start to the final quarter" but noted that "the economic situation remains fragile" given the more cautious outlook for the future.

The manufacturing sector continues to face challenges, with companies cutting jobs at an accelerated pace despite increased production. Supply chain issues related to semiconductors, particularly affecting the automotive and mechanical engineering sectors, remain problematic.

The service sector showed significant improvement with increased business activity, higher volumes of new business, and renewed hiring after two months of staff reductions. However, accelerating costs, likely driven by above-average wage increases, continue to pressure the sector.

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