Supply disruption, weaker demand cloud outlook for German manufacturers

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© Reuters. FILE PHOTO: Staff wear protective masks at the Volkswagen assembly line in Wolfsburg, Germany, April 27, 2020. Swen Pfoertner/Pool via REUTERS

BERLIN (Reuters) – Supply disruption and weaker demand weighed on German manufacturing activity in April as the war in Ukraine and COVID-19 lockdowns in China worsened the outlook for goods producers in Europe’s biggest economy, a survey showed on Monday.

IHS Markit’s Final Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of the economy, fell to 54.6 from 56.9 in March. The reading was slightly higher than a flash reading of 54.1.

Phil Smith, Economics Associate Director at IHS Markit, said supply chain disruption and falling demand resulted in manufacturing output shrinking for the first time since the initial COVID shutdowns in the first half of 2020.

A similar situation was observed for new orders, said Smith, suggesting demand for goods was slowing.

“While factory employment continues to rise, and at a robust pace, it would seem that it’s only a matter of time before the weakened trends in output and new orders start to feed through to hiring activity, especially given manufacturers’ gloomy assessment of the outlook,” he said.

“It’s early days yet, but it’s already looking like manufacturing will be a drag on the economy in the second quarter, and the prospect of more lockdowns in China and any escalation of the energy crisis would only serve to increase this risk.”

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