German Business Activity Stabilizes in Pre-Election Boost
(Bloomberg) -- German private-sector activity stabilized after six months in decline, an unexpected improvement that’ll be welcomed by politicians before a snap election next month.
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S&P Global’s composite Purchasing Managers Index for Europe’s biggest economy rose to 50.1 in January, a touch above the threshold separating growth from contraction. Economists had expected the gauge to keep pointing to shrinking activity.
“It looks as if companies see good reasons to put pessimism aside,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, in a statement. “The PMI offers some hope that Germany might dig itself out of the recessionary phase of the past two years.”
Services activity grew at a quicker rate, allowing firms to add staff for the first time since June. Manufacturing continued to shrink, but at a slower pace than in December.
The euro extended gains versus the dollar, rising as much as 0.8% to 1.0491, the highest since Dec. 18. Traders pared bets on European Central Bank interest-rate cuts, pricing 91 basis points of easing through 2025 — 4 basis points less than Thursday.
The German economy just capped its second year of falling output, weighed down by high borrowing costs, weak foreign demand and growing struggles to modernize its economy. The weakness has become a dominant theme ahead of the Feb. 23 federal election.
The vote will probably see Chancellor Olaf Scholz ousted by Friedrich Merz, who’s promising to return Germany to a growth path by lowering taxes and bolstering middle-class incomes. Any new government faces a challenge in dealing with President Donald Trump‘s threat to impose tariffs on European goods.
Germany companies still showed greater optimism, citing tentative signs of a market recovery as well as hopes for a post-election upswing, S&P Global said. There was little relief on inflation, however, partly due to higher carbon taxes affecting services like transport and hospitality.
In France, S&P’s composite PMI index showed activity contracting at a slower pace. The index rose to 48.3, more than analysts had predicted, but signaled contraction for a fifth consecutive month.
Companies and households in the region’s No. 2 economy have faced high political uncertainty in recent months. While the current government led by Prime Minister Francois Bayrou has pared back ambitions for fiscal consolidation after the collapse of the previous administration, it still targets €53 billion worth of spending cuts and tax increases this year.
“It is primarily the political crisis that is economically paralysing the country,” said Tariq Kamal Chaudhry, an economist at Hamburg Commercial Bank. “The next budget vote will decide not only the fate of the Bayrou government but also the economic stability of the country.”
Numbers for the euro area as a whole are due later on Friday. A reading for the US is expected to come in well above 50, while the UK’s is anticipated just above that mark.
PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.
--With assistance from Joel Rinneby, Mark Evans and Alice Atkins.
(Updates with market reaction in fifth paragraph.)
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