DWS: Commentary on German PMI

June 23, 2021

This is a commentary by Martin Moryson, Chief Economist Europa at DWS, on the German PMI.

The mood in the German economy is apparently excellent. The Purchasing Managers' Index for June improved from 56.2 to 60.4 points. What is particularly striking is that, despite the already high level in May, sentiment in the manufacturing sector improved by a further half point to 64.9 points.

The delivery times index has reached its lowest level since the financial crisis. Production is barely keeping up; not least because of the shortage of intermediate products, such as the semiconductor shortage in the auto industry.

Sentiment in the service sector has also improved significantly, and even more so than observers had expected: from 52.8 to 58.1 points. It is striking that one of the main drivers in both sectors is the price component.

The "reopening" of the economy is apparently causing friction in many places, which is reflected in higher prices. However, these effects should be of a temporary nature.

The situation is similar in the euro area as a whole: Here, too, the purchasing managers' indices for the economy as a whole and for the service sector rose and remained constant for industry.

Nevertheless, the data show that the upswing in Europe is finally here. Over the summer, the economy should continue to recover strongly - thanks to the sharp decline in infection rates. Whether the economy turns down again toward the fall depends largely on the progress of the vaccination campaign. However, there has been encouraging progress here: in terms of the number of vaccinated people per 100 inhabitants, the euro area has now caught up with the U.S.