German factory output hits 4-1/2 year high as orders surge

Germany's manufacturing sector gathered pace in August, with the S&P Global Purchasing Managers' Index (PMI) climbing to 54.3 from 52.2 in July. The final reading came in slightly above the preliminary estimate of 54.1, signalling a solid expansion in factory activity.

Production growth was the strongest recorded since January 2022, underpinned by a third consecutive monthly rise in new orders. Firms attributed the demand surge to defence spending, the build-out of data centres, and precautionary stockpiling by clients.

Supply-side pressures intensified during the month. Supplier delivery times lengthened to the greatest extent in three months, while purchasing activity expanded at its fastest pace since May 2022 as manufacturers rushed to secure inputs amid tight availability.

Phil Smith, economics associate director at S&P Global Market Intelligence, noted that the upturn was being led by the intermediate goods sector. He suggested that growth was still being supported to a degree by safety stockpiling amid tight supply conditions.

Business sentiment improved markedly, with expectations for output over the coming year at their brightest since the onset of the Middle East conflict. Employment continued to decline, though the pace of job cuts eased for a third consecutive month and was the weakest since September 2023.

Backlogs of work rose solidly, ending a three-month stretch of decline and indicating that factories are operating with fuller order books.