Germany's manufacturing sector offered a glimmer of recovery in March, as production levels rose for the first time in nearly two years. The manufacturing PMI rose to a 31-month high of 48.3, indicating an ongoing but gradually softening contraction. Most notably, the output index surged to 52.1, its highest in three years, driven by strong performance among intermediate goods producers. This output rebound was supported by the first increase in new orders in three years, suggesting a modest revival in demand, particularly from domestic markets.

Despite this, overall conditions remained fragile. Employment continued to decline, albeit at a slower pace, and firms remained cautious, cutting input purchases and reducing stock levels. Encouragingly, input costs and factory gate prices continued to decline, driven by improved supplier delivery times, lower freight costs, and a weaker dollar. These factors helped ease inflationary pressures.

While export sales remained subdued, a growing sense of optimism emerged, with future output expectations reaching their highest since early 2021. Infrastructure investment and better market sentiment appeared to underpin this outlook. Although still below the neutral 50.0 mark, Germany's manufacturing sector is steadying, hinting at a cautious yet hopeful start to industrial recovery. The latest update takes the German RPI to minus 23 and the RPI-P to minus 18. This indicates that economic activities are lagging behind market expectations for the German economy.

No revision is expected from the flash at 48.3 in the final March report.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 500 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are released by S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index in the U.S. and the Markit PMIs elsewhere, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.

The S&P Global PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.