German industry grows at its strongest pace since 2022

Purchasing Managers' Index: Industry Embarks on Catching-Up Rally

Despite low water levels on the Rhine and an unresolved situation in the Persian Gulf, German industry has accelerated its growth. The S&P Global Purchasing Managers' Index reports the strongest pace in four years.

In August, the Purchasing Managers' Index for German industry rose unexpectedly by nearly two points to 54.1. Economists had anticipated a slight decline. Above an index value of 50, the economic barometer signals growth.

For the index, S&P Global surveys purchasing managers in industry and services on topics including production, orders and employment. It is considered one of the most important leading indicators for economic development.

Defense Spending Makes Its Mark

S&P Global reported that production, new orders and exports in German industry grew at their strongest pace since early 2022 — that is, before Russia's full-scale invasion of Ukraine. "Industry has regained momentum in its recovery after showing signs of stagnation in the second quarter," said Phil Smith, economist at S&P Global Market Intelligence.

After months of uncertainty caused by the Iran war, certain catch-up effects are now visible. Rising defense spending is also making itself felt. While it remains to be seen whether the pace of growth can be sustained — supply risks do still exist, Smith notes — the remarkable brightening of the business outlook among manufacturers suggests "that the upturn is on solid footing."

Services Sector Falters

The services sector is faring somewhat worse. Here, the Purchasing Managers' Index has fallen to 48.5 points, placing it below the growth threshold.

"The services sector appears to be experiencing a summer blues," summarized Elmar Völker of LBBW. Industry, by contrast, is enjoying a level of optimism not seen in a long time: "The fact that global economic demand remains robust despite the consequences of the Iran war apparently outweighs the domestic burden of the low-water crisis." Viewed overall, however, the German economy should not expect boundless growth.

Sentiment Is the Decisive Factor

For Michael Herzum of Union Investment, the Purchasing Managers' Index results show that the German economy is more resilient than feared. While business sentiment had been weighed down in recent months partly by the Iran conflict, "a significant real-economy slump has not materialized."

Cautious optimism is warranted for the remainder of the year. However: "A prerequisite for a stronger recovery is a sustained improvement in business sentiment. Only then are higher order intakes likely to translate into tangible increases in production and additional private-sector investment."

DAX Stabilizes

The DAX has stabilized after a four-day losing streak. Following the opening of trading, the leading index once again surpassed the psychologically important level of 26,000 points. In early afternoon, the DAX was trading up by just over a quarter of a percent.

On a weekly basis, the index is heading for a loss of 1.5 percent. The primary drag in recent days has been the rise in yields on bond markets.

The reasons for this include, among other things, rising inflation concerns and the in some cases massively increasing national debt. Thus, it became known this week that the United States' mountain of debt has risen to over 40 trillion dollars.