Yesterday, we got our first look at December’s economic data for Europe, in the form of PMIs. It is also our first look at any data related to trade and the China reopening. In light of the reopening, lets delve into China’s number one European trading partner – Germany.
Germany exports the most goods to China of any European country by far. In 2021, the value of imports to China from Germany was just over $120 billion.
For a $4 trillion economy, this is significant exposure. With this in mind, German PMI should be the most sensitive of European PMIs to changes in trade with China.
Headlining the report: composite PMI came in at 49.7, slightly beating expectations of 49.6. Manufacturing PMI missed expectations of 48.0 at 47.0, which is where we would have expected to see the impact of the Chinese reopening. Services PMI, however, beat expectations of 49.5 at 50.4 – likely due to the mild winter Europe has experienced so far.
German manufacturing PMI declined slightly from December, dropping from 47.1 to 47. A major decrease of input prices from 60.4 to 52.8 demonstrates a continued decrease in inflationary pressures. This reduction is somewhat misleading though, as it is mostly due to more active government intervention in the energy markets. Despite lower input prices, output prices rose by 0.8 over the month. A divergence like this is typically good for margins. New export orders increased for the third month in a row, though they are still contracting, reflecting the absence of the China effect. This being said, future output expectations have been increasing every month since October, and another significant increase this month demonstrates that German purchasing managers feel good about their prospects in the coming months.
For services PMI, we saw a gain from 49.2 in December to 50.4 in January. New export orders edged up for the second time in a row, now into expansion territory. The mild European winter is likely the origin of this surge. Similar to the dynamic in manufacturing, service input prices came down over the month, but both input and output prices are holding well above 50.
This PMI data seems to evidence that the Chinese reopening has had a fairly small effect on the German economy thus far. The so-far mild winter appears to be the main factor driving Germany’s PMIs.