German factory slump deepens again as recovery seems elusive

Bloomberg

Just when German factories appeared to be exiting a yearlong slump that battered the country’s economy, it worsened again.
The last surveys of purchasing managers for 2019 highlight the dire state of industry in Europe’s largest economy, which was one of the largest drags on the 19-nation euro zone this year. There were also disappointing numbers out of France and the UK.
Prospects of a trade deal between the US and China have done little to alleviate concern that Germany will continue to struggle. Carmakers are having trouble to adapt to a world of electric engines, manufacturers are faced with weaker global demand, and consumers are slowly starting to feel the pain.
The outlook for 2020 is grim. With the labour market — a stronghold of the economy so far — increasingly affected by Germany’s factory malaise, household spending is starting to dwindle.
The Bundesbank has slashed its forecast for next year in half, seeing an expansion of a mere 0.6%, and President Jens Weidmann warned of “external danger zones, which could aggravate and lengthen the downturn in industry.”
“The past two decades have been good for Germany. A strategy of exchanging pay gains for job security delivered the competitiveness needed to thrive in an era of mega-globalisation. Germany’s trade deepened as a result, supporting productivity growth. Now this growth model is under threat,”Jamie Rush said.
IHS Markit’s Purchasing Managers’ Index for manufacturing unexpectedly fell to 43.4 in December, defying economists’ estimates that the number would pick up.
While declines in new orders and exports eased, overall weakness more than offset growth in the services sector, keeping the private sector in contraction for a fourth straight month.
The data “point to a weak end to a difficult year for the German economy,” said Phil Smith, an economist at IHS Markit. “Manufacturing continues to weigh heavily on private sector output.”
The Economy Ministry also expressed mild optimism. While the economy is currently stagnating, there are “first signs” of an end to the manufacturing downturn, making a gradual recovery in the wider economy more likely, it said in its monthly report.
The European Central Bank last weak revised down its projections for growth in the euro area next year. President Lagarde highlighted the challenges facing the economy, but also pointed to signs of stabilization, arguing downside risks are “somewhat less pronounced.”
A gauge for activity in the region’s private sector stayed at 50.6 in December, slightly lower than economist estimates of 50.7. It signals fourth-quarter output will be the weakest since the bloc exited a double-dip recession in the second half of 2013.

UK economy likely to shrink amid factory woes
Bloomberg

UK factories posted the weakest performance in more than seven years in December, increasing the chances that the economy will shrink in the fourth quarter, IHS Markit said.
A flash indicator for all business activity dropped to the lowest since the aftermath of the 2016 referendum, Markit said. Manufacturing activity slipped to 47.4, a sharper downturn than the 49.2 reading predicted by economists and below the 50 mark that indicates falling output.
The flash reading for the services sector, the largest part of the economy, fell to 49, a nine-month low. The prospect of leaving the European Union and the global slowdown have dented
demand throughout 2019.
Boris Johnson’s decisive election victory last week may remove some near-term concerns, though a myriad of questions remain over the UK’s future relationship with the European Union.