Worrying New Data: Euro Crisis Reaches German Industry

German companies believe the euro crisis has damaged their prospects for growth in 2012, according to new figures released on Thursday. Manufacturing activity hit a three-year low and export orders have also seen a sharp drop. The data suggest the crisis is starting to hit the previously robust German economy.

A construction site in Frankfurt. Concerns are growing that the German economy may be slowing down. Zoom
dapd

A construction site in Frankfurt. Concerns are growing that the German economy may be slowing down.

For a long time, the German economic powerhouse seemed immune to the effects of the European debt crisis. In recent weeks, however, economic indicators have begun to suggest that dark clouds may be gathering over Germany.

The latest bad news came on Thursday. New figures showed that Germany's private sector shrank in June for the second month in a row, and manufacturing activity hit a three-year low.

The purchasing managers' index compiled by the research institute Markit based on a survey of 1,000 firms fell by 0.8 points to 48.5 percent -- the lowest figure since June 2009, and below the 50-point mark which is considered to separate growth from contraction. The index for the whole of the euro zone was 46, the same as last month and the lowest level in three years.

Markit's Tim Moore said in a statement that there seems to be "a deepening consensus among German businesses that the euro area turbulence has already damaged their growth prospects for the latter half of 2012." Business outlook in the service sector fell sharply from 55.9 in May to 47.0, the biggest drop in the survey's 15-year history.

The purchasing managers' index for industry also fell by 0.5 to 44.7 points, the lowest value in three years. "German manufacturers were at the forefront of the downturn as a worsening global economic backdrop and the ongoing euro crisis weighed heavily on export demand," Moore said.

In June, export orders saw their biggest drop since April 2009. As a result, industry cut the largest number of jobs in two-and-a-half years. Although the sector sector is still taking on workers, the number of new hires was relatively low in June.

'Worryingly Steep Downturn'

"It is a worryingly steep downturn we are seeing (in Europe) and it is spreading from the periphery, which has been falling at an increased rate, through to Germany," said Chris Williamson, chief economist at Markit.

There are fears that the German economy may have contracted in the second quarter of 2012, following its strong performance in the first quarter, when it grew by 0.5 percent. The Markit survey suggested that gross domestic product for the whole of the euro zone may have shrunk by 0.6 percent in the second quarter. The German government, however, expects the German economy to grow moderately through 2012, according to a monthly report published by the Finance Ministry on Thursday.

The Finance Ministry's report also revealed that tax revenues had fallen in May for the first time in two years. Total tax revenues on the national and state level were €40.26 billion ($51 billion) in May, 4.3 percent lower than in the same month of last year. Ministry experts blamed the drop largely on a technical change in the way certain taxes are collected. But the ministry report also said that there were indicators that the German economy is slowing down, which will affect tax revenues.

Thursday's figures come on the heels of other bad news. The ZEW survey of investor and analyst sentiment published earlier this week showed sentiment fell in June at its fastest rate since October 1998 amid concerns about Spanish banks and the Greek election. Other figures released earlier this month showed that German exports had fallen by 1.7 percent month-on-month in April.

dgs -- with wire reports

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