Germany’s March flash manufacturing PMI stood at 48.3, exceeding expectations of 47.0 and surpassing the previous figure of 46.5. The services PMI registered at 50.2, falling short of the 51.6 estimate and down from 51.1 last month, while the composite PMI reached 50.9, just below the anticipated 51.0.
The HCOB Flash Germany Composite PMI Output Index hit a 10-month high, whereas the services PMI Business Activity Index dropped to a 4-month low. In contrast, the Manufacturing PMI Output Index achieved a 36-month high, and the Manufacturing PMI itself reached a 31-month high.
Manufacturing Sector Improvements
Manufacturers have increased production for the first time in nearly two years, potentially linked to a surge in imports from the US. There are concerns that challenges may arise with the upcoming tariffs, despite optimism surrounding Germany’s new infrastructure and defence package that could offer moderate support to the manufacturing sector.
Service sector growth was limited in March, with new business declining and difficulties in raising prices. It is expected that fiscal policies may start to influence the service industry later in the year, driven by demand from infrastructure projects, though substantial effects might not manifest until 2026.
Employment in manufacturing remains steady, alongside moderate growth in services, indicating a possible bottoming out of the German economy. This scenario may provide opportunities for recovery as the fiscal stimulus meets obstacles from US tariffs.
Germany’s latest flash PMI readings suggest ongoing shifts in economic performance, particularly across manufacturing and services. Manufacturing showed clear improvement, with production growth resurging after nearly two years of contraction. That this coincides with a rise in imports from the US raises questions about how the situation may change once new trade measures take effect. With tariffs on the horizon, any advantages gained from renewed production momentum could come under threat, though infrastructure investment plans may help offset some pressures.
Challenges In The Service Industry
Services, on the other hand, have not followed the same upward trend. Activity in this sector struggled last month, with new business declining and firms finding it increasingly difficult to raise prices. The slow movement here suggests ongoing caution, particularly as fiscal policy has yet to have a strong effect. Public investment, especially in large-scale infrastructure, may eventually provide a boost, but this is unlikely to be felt immediately. Projections indicate that those benefits may not fully materialise for another two years, making short-term expansion less certain.
Employment figures offer a different perspective. While manufacturing jobs have remained stable, modest hiring in services points to tentative optimism. A continued base of steady employment could provide enough resilience to prevent broader economic decline, but it does not necessarily indicate robust expansion. Stability alone will not be enough if external pressures, such as trade restrictions, begin to weigh on business confidence.
Analysing these shifts alongside external risks leads to an unavoidable conclusion: momentum is developing, but obstacles are present. Expectations for manufacturing may look promising now, yet they rely on conditions that are not guaranteed to persist. Services appear more constrained, waiting for policy measures to gain traction. The broader balance between these two sectors will shape how the economy progresses, particularly as fiscal policies attempt to counter external disruptions.
