BERLIN, April 23 (Reuters) – Germany’s private sector contracted for the first time in almost a year in April as the Iran war put the brakes on the country’s economic recovery, hitting demand and driving up prices, a survey showed on Thursday.
The composite flash Purchasing Managers’ Index for Germany, compiled by S&P Global, fell to 48.3 in April from 51.9 in March, below the expectations of analysts polled by Reuters that it would remain in growth territory at 51.2.
The April reading marks the first time since May last year that the composite index has fallen below the 50 mark, signalling contraction. A reading above 50 indicates growth.
The composite index tracks the services and manufacturing sectors that together account for more than two-thirds of the euro zone’s largest economy.
GERMAN RECOVERY STOPPED IN ITS TRACKS
“The recovery in the German economy has been stopped in its tracks by the war in the Middle East,” which has led to heightened uncertainty and sharply rising prices, said Phil Smith, economics associate director at S&P Global Market Intelligence.
Services led the downturn. The flash PMI for that sector dropped to 46.9 from 50.9, its lowest level since late 2022.
Growth in the manufacturing sector slowed, with the corresponding index at 51.2 from 52.2 in March.
“The manufacturing sector saw output and new orders edge higher, although there are warning signs that it too could soon slip back into contraction,” said Smith.
NEW BUSINESS FALLS ON CAUTIOUS CUSTOMERS
New business fell at the steepest rate since December 2024 as a marked drop in services demand more than offset a further, but much slower, increase in manufacturing orders, with firms citing customer caution amid geopolitical uncertainty.
Inflationary pressures also intensified as overall input price inflation reached its highest level since November 2022, while output charge inflation in services and manufacturing hit 35-month and 39-month highs, respectively.
Business expectations fell to their lowest since September 2024 and turned negative for only the second time in more than two-and-a-half years.
In addition, employment declined again, extending a run of job losses to almost two years.
“There’s seemingly been little spillover to the labour market as yet, with jobs being cut at only a slightly faster rate than the trend in the months before the outbreak of the war,” said Smith.
“That’s likely to change, however, if activity remains suppressed and energy prices remain elevated.”
(Reporting by Miranda Murray; Editing by Joe Bavier)
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