Is the German private sector losing momentum?

Despite the economic expansion and political strength, the German economy isn’t at the top. Why is it slowing down?

What do figures say?

The recent data shows that the German private sector keeps gradually decelerating its development. The major activity shifted to the south during the last 3.5 years. The report released in the last October’s Wednesday said that Europe’s most advanced economy started losing its power in the fourth quarter of the year.

Such research was published by Markit agency. It analyzed Flash German Composite Output Index that shows the output of both manufacturing and service sphere: its level nosedived from 55.0 to 52.7 in October – it’s the lowest since the middle of 2015 (the last 29 months). A few months ago, market experts were more optimistic: their forecast was 54.8.

Aside from it, October was marked by fall of German services purchasing managers’ index that declined to 53.6 from its previous level of 55.9 during five months. Market experts thought that it would hit the level of 55.5.

Although the index level above 50.0 highlights the industry growth and expansion, the current tendency of the German market isn’t positive. If the index goes below 50.0, we will witness the contraction of the industry.

Aside from that, the report creators admitted that the overall business activity in Germany is the lowest during the recent 3.5 years. That signifies about the deceleration of sector evolvement. Such a situation can be partially explained by the weak trend in new orders.

What are the possible reasons for downshifting?

There are several factors affecting the German economy now:

  1. The flow of refugees in the last years has resulted in a high level of unemployment.
  2. Germany is a tradition-bound country, and it needs much time to adopt the new technologies and globalization.
  3. The era of self-driving and electric cars poses the risk for Germany, home to the leaders of the automobile industry (Volkswagen, Porsche, Mercedes-Benz, Audi, BMW).
  4. Due to the severe summer drought German agricultural sector has been seriously affected. Farmers will have to turn into importers instead of exporters for the first time during 3 decades.

On November 8, the German Private Equity Conference is going to gather the representatives of German business to discuss achievements and weaknesses, networking opportunities, and other important aspects.