German Economic Activity Sees Steepest Decline Since May 2020 Amid Rising Interest Rates

S&P Global has released the preliminary PMI data for HCOB (Hamburg Commercial Bank) for the month of July.

In Germany, economic activities experienced the sharpest decline since May 2020 in August due to the adverse impact of increasing interest rates on demand.

According to the data, the composite PMI, which was at 48.5 points in July, fell to 44.7 points in August.

The market expectation for the composite PMI, which has been below the 50-point level indicating growth for two consecutive months, was to decrease to 48.3 points.

The services sector PMI in the country also dropped from 52.3 to 47.3 in August, reaching its lowest level in nine months.

On the other hand, the manufacturing PMI increased from 38.8 to 39.1 in the same month.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, mentioned in his assessment that all hopes of the services sector rescuing the German economy have vanished. He added that instead of that, the services sector seems to have joined the stagnation in the manufacturing sector that appeared to have started in the second quarter.

In the PMI data, a value above 50 points indicates expansion, while a value below 50 indicates contraction.

The manufacturing and services sectors make up more than two-thirds of the German economy.

Due to the unusual high inflation and the impact of rising interest rates suppressing consumer spending, the German economy technically entered a recession with a contraction of 0.3% in the first quarter of the year. It had also contracted by 0.5% in the last quarter of the previous year.

While the economic challenges arising from the COVID-19 pandemic have eased to some extent, the German economy is still negatively affected by the rise in interest rates, reduced consumer confidence, and the unusual high inflation environment, resulting in subdued demand.

While the German government expects a 0.4% growth in the economy this year, leading economic think tanks in Germany are predicting an economic contraction of 0.2% to 0.4% in 2023.

Meanwhile, the German Federal Statistical Office (Destatis) will release the preliminary GDP data for the second quarter of the year on August 25th.