German manufacturing PMI shows "positive start" to year

Germany's manufacturing purchasing managers' index remained in contraction territory but reached a three-month high in January, survey publisher S&P Global reported on Monday.

The headline HCOB Germany manufacturing PMI reached "a three-month high" of 49.1 points in January, higher than the 48.7 flash estimate and up from 47.0 in December.

Nonetheless, the latest PMI remained in contraction territory, below the 50.0 point neutral mark, for the 43rd consecutive month.

The PMI output index returned to growth, however, posting its own three-month record of 51.4 points for January against 48.3 in December.

"This smells a bit like a recovery could be underway," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. "Output has rebounded rather swiftly from the drop in December, optimism about future output has risen from an already high level, and new orders have ticked up a bit."

He noted that "input prices are climbing again" but that companies "have struggled to pass these cost pressures on to customers.

"At best, they’ve managed to slow the ongoing three month decline in output prices, nothing more," he said.

Additionally, companies "are continuing to shed jobs at a brisk pace".

Looking ahead, de la Rubia continued: "Hopes for a broader recovery are supported by general anecdotal evidence. Manufacturers seem to see opportunities to pivot toward defence related production, where demand is rising amid geopolitical tensions and increased public spending on military goods.

"The situation remains fragile, though. Companies are still drawing down their inventories at speed, and the backlog of work is shrinking even faster than at the end of last year."

The HCOB Germany manufacturing PMI is compiled by S&P Global from questionnaire responses by a panel of around 420 manufacturers. This month's data was collected between January 12 and January 23. The services and composite reading will be released on Wednesday.