FX.co ★ Germany faces growing downturn in business activity

According to Reuters, Germany's economy showed signs of slowing down in November, marking a worrying trend. The country's economic activity has been contracting for five consecutive months, with the latest decline being the most significant since February 2024.

The HCOB Germany Purchasing Managers' Index (PMI), compiled by S&P Global, plummeted to 47.3 in November from 48.6 in October, while analysts had expected the indicator to remain unchanged.

Business activity in Germany's services sector also worsened in the final month of autumn. The services PMI unexpectedly came in at 49.4, down from 51.6 in October. Notably, a reading below 50 indicates contraction in economic activity. "Until recently, the German economy was stabilized somewhat by the service sector, which was making up for the steep decline in manufacturing. Not anymore," Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said.

Germany’s economy managed to avoid a technical recession in the third quarter of 2024, but the government now expects the country's output to shrink by 0.2% by the end of the year. This slowdown is putting a dent in the country's manufacturing sector and casting doubt on Germany's role as the driving force behind the world's leading economies.

The German economy is now facing increased competition from abroad, weakening demand, and a slowdown in industrial activity. Adding to the strain are budget disputes that have weakened the ruling coalition, leaving Europe’s largest economy in a state of political uncertainty. The situation may improve with snap elections scheduled for February 2025, but this remains uncertain. "The announcement of snap elections in Germany on February 23 isn't helping," Cyrus de la Rubia noted.

On a somewhat more optimistic note, the German manufacturing PMI improved slightly, rising to 43.2 from 43 a month ago. However, the overall situation remains far from positive, analysts concluded.