Germany January flash manufacturing PMI 45.4 vs 43.7 expected

<ul><li>Prior 43.3</li><li>Services PMI 47.6 vs 49.5 expected</li><li>Prior 49.3</li><li>Composite PMI 47.1 vs 47.8 expected</li><li>Prior 47.4</li></ul><p>Similar to the French report, there is a beat on the manufacturing index but the services index came in worse than estimated. At the balance, it leads to a further downturn in the German economy. Looking at the details, price pressures remain stubborn and resistant – particularly in the services sector. And that could pose a bit of a problem to the ECB in managing rates expectations in the months ahead. HCOB notes that:</p><p>"Germany has faced a sluggish start to the new year. Services activity has not only declined for the fourth consecutive
month but has also accelerated in its downturn. Manufacturing, remaining in recessionary territory for the 19th straight
month, has displayed a somewhat softened downturn, as reflected in the steadily rising PMI index since August of last year.
Recognizing the inherent uncertainty at this early stage, our GDP Nowcast, which considers the PMI data, suggests a
continuation of the recession into the current quarter, however.
</p><p>“Red Sea reroutings are having an impact on supply chains of the manufacturing sector. Evidence for this is the strong fall in
the delivery times sub-index. In fact, it would be surprising if the events in the Red Sea left no traces behind, as the Houthi
attacks on commercial vessels mean that most of them chose to take the detour around the Cape of Good Hope. Most ships
have to extend their journey by approximately seven days, accompanied by a hefty additional million-dollar fuel cost burden,
particularly affecting vessels originating in Asia bound for Europe. Despite these challenges, the ongoing dip in input costs,
albeit with a softer trajectory, hints that transport expenses may not wield overwhelming influence yet over the aggregate
unit costs of the myriad consumer goods traversing this route.
</p><p>“In contrast to the manufacturing realm, inflation remains a pressing issue in the service sector. The acceleration of input
prices throughout January marks the third consecutive month of heightened inflationary trends. Notably, output prices have
risen at a robust rate and at a similar speed to that seen in December, a deviation from the norm in a country potentially
facing a prolonged recession. The primary driver behind this acceleration is likely the escalating cost of labour, with
employees asserting their bargaining power for above-average wage hikes. This sentiment seems justified, given employers'
reluctance to trim jobs in the service sector, resulting in a relatively stable level of employment.
</p><p>“Amidst the quest for positive news, the service sector unveils a notable surge in optimism about future business prospects,
fitting to the absence of any job cuts. Contributing to this optimistic shift is the perception that passing on higher prices to
consumers is still feasible."</p>

This article was written by Justin Low at www.forexlive.com.