Germany’s manufacturing PMI for August is 49.9, beating the expected 48.8 and improving from 49.1 last month. The services PMI came in slightly lower than expected at 50.1, down from 50.6 in July. Meanwhile, the composite PMI is 50.9, which is above the forecast of 50.2 and a slight increase from 50.6. The manufacturing sector has shown growth for six months and has seen an increase in new orders. However, companies in this sector are cutting jobs, which may help improve productivity and competitiveness. Input prices have dropped due to lower oil prices and a strong euro, and some of these savings have been passed to customers.

Service Sector Challenges

On the flip side, the services sector is facing rising costs, mainly from higher wages. Companies are managing to pass on some of these costs to their clients. Manufacturing input inventories are falling, indicating reduced buying as companies remain cautious. This caution persists despite signs of recovery and challenges such as U.S. tariffs and global uncertainties. The unexpected strength in German manufacturing could benefit equities, especially the DAX index. The composite PMI’s growth gives reason for considering positive positions. This aligns with recent Destatis data showing that industrial production has stabilized in the second quarter of 2025. This strong data supports the euro against the U.S. dollar. A strong German economy may lead the European Central Bank to delay any expected interest rate cuts. We’re already noticing shifts in money markets, with the likelihood of a rate cut before the end of 2025 decreasing from 50% to below 30%.

Implications for Bonds

We need to be careful with German government bonds, as strong growth and ongoing inflation in the service sector could push yields higher. The gap between falling factory prices and rising service costs, which official data revealed reached a 3.2% annual rate in July 2025, presents a complex situation. For now, unexpected economic strength may keep downward pressure on Bund prices. The contrast between a recovering manufacturing sector and a slowing services industry suggests chances for sector-specific trades. Industrial exporters might do better than domestically focused service companies, which are facing rising wage costs highlighted by recent union deals. This internal strife, along with continued corporate caution—like job cuts for productivity—might also lead to greater market volatility. The rise in new manufacturing orders to its highest level since March 2022 is particularly noteworthy. That period marked the start of significant geopolitical and economic uncertainty from events in Ukraine, which dampened sentiment for years. This latest data could indicate that we are finally breaking out of long-term industrial stagnation. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now