Germany economy took a big step to putting the horrors of 2019 behind it, opening the new year with a pickup in activity and business confidence.
IHS Markit's composite Purchasing Managers' Index rose to a five-month high of 51.1 in January, beating forecasts for a reading of 50.5. While manufacturing is still shrinking, the pace of contraction was less severe than economists had predicted.
Amid a thawing of U.S.-China trade tensions, the report adds to hopes that Europe's largest economy is through the worst of its slump. A major upturn isn’t in the cards for this year, but the stabilization alone is good news for an economy that took a beating in 2019.
Confidence in both services and manufacturing strengthened this month, with factories the most upbeat in almost 1 1/2 years. On Thursday, European Central Bank President Christine Lagarde noted that the trade backdrop had improved and said that downside risks to the economic outlook are “somewhat less pronounced.”
“The storm clouds over the German economy may be starting to clear,” said Phil Smith, an economist at IHS Markit. “Demand has started to firm up a little both at home and abroad.”
There's still a risk that Europe could be dragged into its own trade war the with U.S. Germany would be particularly hard hit, with Donald Trump threatening again this week to impose levies on cars, a key part of German industry.
Germany's services PMI rose to 54.2 in January from 52.9 in December. The factory measure climbed to 45.2 from 43.7. That's still below the key 50 level, but it has gained for three of the past four months and currently stands at an 11-month high.
Forward-looking indicators also provided reasons for hope. New business across the private sector rose for the first time in seven months, while the decline in manufacturing orders eased to the least in 15 months.
Figures earlier on Friday showed more downbeat numbers in France, where strikes hit the services sector. But that drag will probably fade, reflected in an improvement in optimism at firms.
A report for the euro area is due at 10 a.m. Frankfurt time.
Source : Bloomberg