German Private Sector Downturn Deepens In September

German private sector activity fell deeper into contraction in September with accelerated reduction in manufacturing output, flash survey results from S&P Global showed on Monday.

At 47.2, the headline HCOB composite output index fell to a seven-month low in September from 48.4 in August. The score was forecast to fall moderately to 48.2.

The drag from the manufacturing sector increased as goods output posted its steepest rate of contraction for 12 months. At the same time, support to the economy from growth in the service sector continued to wane.

The services Purchasing Managers' Index fell to a six-month low of 50.6 compared to 51.2 in the previous month. The reading was seen at 51.1.

The manufacturing PMI hit a 12-month low of 40.3, down from 42.4 in August. The reading was forecast to remain unchanged at 42.4.

Total inflows of business dropped the most in nearly a year, as a renewed fall in new work received by services firms coincided with a deepening downturn in manufacturing new orders. New export business also decreased on a broad-based basis.

A fall in backlogs of work hinted at decreasing capacity utilization across the private sector. Job losses were reported for the fourth straight month.

Increased willingness to trim workforce numbers coincided with a substantial deterioration in their expectations towards activity in the coming year. For the first time in twelve months, companies anticipating a decrease in output over the next year outnumbered those forecasting a rise.

Turning to prices, the survey showed a notable softening of cost pressures in September. Input price inflation in the service sector was the weakest in over three-and-a-half years. Manufacturing purchasing costs fell at the quickest pace in six months.

There was a slower increase in service sector output prices and factory gate charges posted an accelerated and solid reduction.

"A technical recession seems to be baked in," Hamburg Commercial Bank Chief Economist Cyrus de la Rubia said. "Our GDP nowcast for the current quarter, which considers the HCOB PMI among other indicators, now points to a 0.2% decrease compared to the quarter before."

The economy already shrank at a rate of 0.1 percent in the second quarter. There is still some hope that the fourth quarter will be better as higher wages combined with lower inflation should boost not only real income but also consumption, supporting domestic demand, said de la Rubia.