Friday, June 1, 2012

German manufacturing shrinks fastest for 3 years

Germany's manufacturing sector contracted at the fastest pace for almost three years in May, albeit more slowly than initially thought, as flagging demand from the euro zone and further afield challenges the country's resilience to the debt crisis.

Markit's manufacturing Purchasing Managers' Index (PMI) fell to 45.2 in May from 46.2 in April, but was just above a preliminary estimate of 45.0, final data showed on Friday.

The figure marked the fastest decline in the sector since June 2009.

"Germany’s manufacturing output continued to lurch downwards in May, with the resilience of the first quarter now giving way to the steepest drop in production levels for almost three years," Markit's Tim Moore said in a statement.

Germany's "Teflon economy" has so far defied the euro zone debt crisis, growing 0.5 percent during the first quarter of 2012 after a weak final quarter last year, and pulling the euro zone back from the brink of recession in the first quarter.

Europe's largest economy has so far been able to resist a period of weak euro zone demand, offset by that from markets in Asia and the United States. But as exports to Asia begin to slow down and the euro zone looks set to contract in the second quarter, it seems the crisis is beginning to hit home.

The new business index fell sharply to 43.8 in May from 44.9 a month earlier, contracting for the 11th month in a row and new export orders declined at the fastest rate since November 2011.

"Weaker global economic conditions resulted in shrinking order inflows, especially from export markets. The latest drop in new work from abroad was the fastest for six months, which manufacturers linked to softer demand within Europe and signs of a slowdown in Asia," Moore said.

Both the Ifo business sentiment survey and the ZEW survey tracking investor and analyst sentiment slumped in May, as political uncertainty in the euro zone took its toll on confidence. [ID:nL5E8GO3J4]

But the GfK consumer sentiment survey has resisted bad news from the euro zone so far and remained steady heading into June, in a sign that private consumption may help to support the economy through difficult times. [ID:nL5E8GO7B9]

German retail sales rose more than expected in April on a monthly basis, up 0.6 percent in real terms, preliminary data showed on Thursday, and Germany's unemployment rate eased further in May although there were signs of the decline losing some momentum. [ID:nL5E8GV4HK]

Employment levels in the manufacturing sector declined for the second month running, and the sub-index contracted at the fastest pace since February 2010. However, the rate of job shedding was relatively modest, Markit said.

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