Covid-19 weighs heavily as German output plunges
German output slumped in March, as the coronavirus outbreak weighed heavily, dragging the country’s service sector down to a record low and setting the eurozone’s biggest economy on course for recession.
The IHS Markit German composite PMI output index plunged to 37.2 in March from 50.7 in February, its lowest since February 2009.
The service sector was behind the sharp decline. The services PMI activity index plummeted from 52.5 in February to a record 34.5, the lowest reading since data collection began in June 1997.
Manufacturing also struggled, with production falling at the joint fastest rate since early 2009, matching the rate of decline seen in July 2012, during the eurozone debt crisis.
Phil Smith, principal economist at IHS Markit, said: "The unprecedented collapse in the PMI underscores how Germany is headed for recession, and a steep one for that.
"The March data are indicative of GDP falling at a quarterly rate of around 2%, and the escalation of measures to contain the virus outbreak mean we should be braced for the downturn to further intensify in the second quarter.
"The service sector has so far borne the brunt of the government’s measures to stem the spread of Covid-19, at a rate that already far surpasses anything seen even during the depths of the global financial crisis."
Governments around the world are introducing increasingly stringent measures to try and contain the pandemic, including enforcing reduced social contact, closing entertainment and leisure venues, shutting shops and curbing time allowed outside the home.
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, called the flash reading "grim".
He added: "Another dreadful set of numbers. The manufacturing gauge fell only modestly, to 45.7 from 48.0, and still remains above its cyclical low of 42.0 in September. Note here though that the counterintuitive boost from a tightening supply side lift the headline again, relative to sharp declines in output and new orders. It’s likely the headline flatters the true state of conditions in German manufacturing.
"The services index, however, was nasty. It is the domestic economy taking it on the chin as measures to halt the spread of Covid-19 kick in.
"We suspect that the March jobless claims numbers, released on 31 March, will spike, probably driving up unemployment by two-to-three tenths of a percentage point, if not more."
PMI data from across Europe was released on Tuesday along with the German flash data and were similarly downbeat.
Tomas Dvorak, eurozone economist at Oxford Economics, said: "Today’s release will fuel even more pressure for a coordinated fiscal response on the eurozone level to mitigate the economic fallout of the pandemic, following the announcement of ramped up monetary policy action by the European Central Bank last Wednesday."