German Manufacturing Enters Its Deepest Slump in Four Years

(Bloomberg) -- Germany’s industrial woes carried into the new year as factory output contracted for the first time in four years.

The poor reading for the IHS Markit Purchasing Managers’ Index in January will reinforce fears about the health of both the European and the global economy. That’s been a key talking point at the World Economic Forum in Davos this week, where the IMF cut its outlook and said an escalation of trade tensions could add further damage.

The euro fell after the PMI, and was down 0.2 percent at $1.1361 as of 9:34 a.m. Frankfurt time.

It will also play into the discussion among European Central Bank policy makers, who meet in Frankfurt on Thursday. The ECB ended net bond buying last month. While officials already indicated then that they wouldn’t start raising interest rates for some time, the deteriorating outlook suggests they may hold off even longer.

The gauge for German manufacturing fell to 49.9 from 51.5. Readings below 50 indicate a contraction and forecasts were for it to be unchanged. New orders fell at the sharpest pace since 2012, with the auto industry and weaker demand in China cited.

In brighter news, the measure for services rose, lifting the composite to 52.1, though that’s still only a two-month high.

France also reported gloomy figures on Thursday, with its composite measure of manufacturing and services dropping to the lowest in more than four years.

A reading for the euro area due later is expected to increase to 51.4 from 51.1, but the disappointing French and German number means that’s now in question.

--With assistance from Kristy Scheuble.

To contact the reporter on this story: Fergal O'Brien in Zurich at fobrien@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Jana Randow

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