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A gauge of German manufacturing output fell to the worst level in seven years in July, underscoring the slowdown in trade that has undercut the exporting powerhouse and may lead the European Central Bank to cut interest rates in two months’ time.
The flash German manufacturing purchasing managers index fell to a reading of 43.1 in July, from 45 in June, IHS Markit said Wednesday. Any reading below 50 indicates contraction.
New orders, employment and inventories all dropped, IHS Markit said. The service side of the economy was faring better, however, as flash German services PMI dipped slightly to a 55.4 reading from 55.8.
The data raises the risk of a “mild” recession, according to Phil Smith, principal economist at IHS.
For the eurozone as a whole, flash manufacturing PMI fell to a reading of 47 from 48.5 in June, which was the worst in more than six years. Flash eurozone services PMI edged lower to 53.3 from 53.6.
The flash reports are based on roughly 85% of responses IHS Markit will collect for the full month. It updates with the result of all the responses in a week.
Economists at Barclays pointed out that the survey data has been worse than hard data. “Downside risks are retaking center stage with the unsettled Sino-U.S. tensions and the softening in Chinese and U.S. activity data. Meanwhile, Brexit and Italy remain dormant unresolved risks that could flare up again this autumn,” they said in a note to clients.
The ECB on Thursday is expected to set the stage for a rate cut in September.
Read: It’s the ECB’s turn to take a step toward further easing when it meets Thursday
The euro EURUSD, -0.0269% traded lower on Wednesday, fetching $1.1140 vs. the dollar. Europe stocks SXXP, -0.08% also declined. The yield on the benchmark 10-year Treasury TMUBMUSD10Y, -0.88% fell to 2.06%.
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