Recovery across the private sector in Germany came to a halt in December as the country moved to contain the latest wave of COVID-19 infections with tighter restrictions, flash purchasing managers’ index (PMI) data from IHS Markit showed on Thursday.
The headline Flash Germany PMI Composite Output Index registered 50.0 in December, down from 52.2 in November and at an 18-month low. This was weaker than a Reuters poll of analysts who had predicted a decline to 51.1 in December.
The latest reading of 50 was indicative of no change in activity, with any value above that mark signalling growth. Anything below that number points to a contraction.
“The German economic recovery was stopped in its tracks in December by the resurgence of the pandemic, as renewed restrictions and increased uncertainty dampened activity across the country’s service sector,” Markit economist Phil Smith said.
Business activity in the service sector also declined for the first time in eight months, dropping to 48.4, a 10-month low, from 52.7 the previous month, despite it being the holiday season, a crucial time among retailers.
It comes after renewed pressure from the fourth wave of the virus, which has prompted officials to back a government-imposed measure making COVID-19 vaccinations compulsory.
Roughly 69 percent of the population in Germany are fully vaccinated, with some 2.99 percent of citizens partially vaccinated.
While the private sector came to a halt, the country saw an uptick in manufacturing production, which showed its strongest growth in three months. Data points to a slight easing in supply-chain bottlenecks and input delivery delays.
The flash PMI for manufacturing was up to 57.9 from 57.4 in November.
“Any disruption to supply chains from the emergence of the Omicron variant seems to have been limited so far, although its impact may not have filtered through yet and the situation has the potential to change quickly if more cases start to appear, particularly in ‘zero-COVID’ policy economies,” Smith said.
The PMI survey data pointed to rates of inflation in input costs and output charges which have eased slightly since November when the EU-harmonized consumer price index hit 6 percent in Germany.
“Price pressures continue to run extremely hot, but December’s survey has at least offered the first indication that inflation might have peaked as rates of increase in input costs and output prices eased slightly from November’s multi-year highs,” Smith wrote.
However, economists are hopeful of a brighter outlook going into next year, with the prospect of supply-chain problems and pandemic-related curbs on activity easing, and companies are already preparing to take on more employees, Smith said.
“A rise in business expectations indicates that companies are looking past any current disruption to a brighter outlook in 2022, when it is expected that the pandemic will become less of an issue and supply-chain constraints will ease,” the economist wrote. “As such, firms are gearing up for strong growth next year and continuing to add to payroll numbers at a historically strong rate.”
The report comes shortly after German Chancellor Angela Merkel left office after 16 years, handing over leadership to Social Democrat Olaf Scholz, after a national election in September.
On Wednesday, the new chancellor vowed his government would win the fight against the pandemic and make Germany “structurally fit” for the 21st century.
“We will do everything that is necessary; there are no red lines for the government,” Scholz said during his government’s first policy address to the Bundestag. “The government will not rest for a moment, and we will pull every available lever until we have all regained our old lives and all our freedoms.”
