On Wednesday, German stocks experienced a notable decline, with the DAX index dropping by 0.92%. Contributing to this downturn was a concerning sign from the nation’s private sector as it slipped back into contraction territory. According to preliminary data compiled by S&P Global's HCOB PMI survey, business activity in Germany suffered a contraction for the first time in four months during July.
The HCOB Flash Germany Composite PMI Output Index was reported at 48.7, down from 50.4 in the previous month. Economists are expressing alarm over these developments. As Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank stated, 'This looks like a serious problem. Germany's economy fell back into contraction territory, dragged down by a steep and dramatic fall in manufacturing output.
The hope that this sector could benefit from a better global economic climate is vanishing into thin air. With the composite PMI now below 50, our GDP Nowcast predicts that economic output will shrink by 0.4% in the third quarter compared to the second quarter. While it is still early days and many data points are yet to come, the second half of the year is starting on a very weak note.' The July report also highlighted the decline in the manufacturing sector, with the HCOB Flash Germany Manufacturing PMI falling to a three-month low of 42.6, down from 43.5 in the month prior.
Although the services sector managed to remain in expansion territory, it too showed signs of slowing, with its PMI falling to a four-month low of 52 from 53.1. Broader trends across the eurozone echoed similar sentiments. The private sector economy's expansion eased in July, with the HCOB Flash Eurozone Composite PMI Output Index reaching a five-month low of 50.1, down from 50.9.
Within this broader context, the services sector's business activity indicator also showed a slowdown, landing at a four-month low of 51.9, down from 52.8. Meanwhile, the manufacturing sector further descended into contraction territory, hitting a seven-month low of 45.6 from 45.8. On the corporate landscape, Deutsche Bank ($DBK) faced the brunt of the market's woes, registering the steepest decline among German blue-chip companies with an 8.32% drop at closing.
This decline followed the bank's announcement of a lower attributable profit for the first half of the year, which could have been more favorable were it not for a substantial litigation provision of 1.3 billion euros associated with the acquisition of Postbank. These developments signal potential challenges ahead within the German and Eurozone economies, prompting investors to closely monitor these trends and reassess their market strategies as the geopolitical and economic landscapes continue to evolve..