German manufacturing activity saw a slight improvement from the 20-month low in April (54.6) but challenging times still lie ahead. A further decline in new orders was observed in May, with output price inflation InflationInflation is defined as a quantitative measure of the rate in which the average price level of goods and s… being little changed from the record high in April. S&P Global notes that:
“Latest PMI data signalled a deepening decline in manufacturing new orders, amid an array of headwinds to demand that included heightened uncertainty among clients due to the war in Ukraine, COVID-related lockdowns in China and some signs of demand destruction from elevated prices.
“Although May’s survey pointed to a slight upturn in manufacturing production levels, with firms reporting a boost from greater staffing capacity and, in some cases, better material availability, the rate of output growth was only modest overall as supply problems continued to curb activity across many companies. Manufacturing output still has some way to go to catch up with demand, but a slowdown in the rate of accumulation of backlogs is a further indication that the gap has closed somewhat.
“Positively, the incidence of supply delays eased during the month, down to the second-lowest since December 2020, coinciding with slightly slower increases in both input costs and output prices across the goods-producing sector. Notwithstanding the tentative signs that price and supplychain pressures have perhaps peaked, material shortages are still a considerable constraint on production and price pressures remain uncomfortably high for businesses.
“The near-term operating environment facing manufacturers is a challenging one in terms of both demand and supply, and this is emphasised by the fact that firms’ expectations remain pessimistic and stuck at their lowest for nearly two years.”