March Flash PMI: Manufacturing Downtick Calls Bottoming Out Into Question

The German flash March PMI showed mixed results, with manufacturing below expectations at 41.6 (43.0 cons, 42.5 prior) but services above consensus at 49.8 (48.8 cons, 48.3 prior). The composite output index rose to 47.4 (47.0 cons, 46.3 prior). This calls into question whether the German manufacturing sector has indeed bottomed out, with the current reading now almost 4 points below the January print. The market reaction was likely contaminated by the SNB's unexpected cut in policy rates.

Key notes from the release:

• "The uptick in the [composite] index was driven mainly by a near-stabilisation of business activity in the service sector".
• "Surveyed businesses often remarked on customer hesitancy, attributing this in part to ongoing geopolitical tensions and high interest rates"....."The drag from falling new export business meanwhile eased."
• "Confidence towards the year-ahead outlook reached its highest since April last year", though this was led by services.
• "A further, albeit slower, rise in service sector workforce numbers provided some support to the labour market, but it wasn’t enough to prevent a renewed decline in overall employment at the end of the first quarter".
• "March saw the rate of input cost inflation slow for the first time in five months"..." The result was driven by a weaker increase in service sector costs, with the decline in manufacturing purchase price having eased to the slowest for 12 months".
• "The rate of output price inflation likewise dropped to the lowest for four months in March"..."This reflected both a slower rise in service sector output prices – the weakest since last November – and deeper cuts to manufacturing factory gate charges".