German manufacturing shrinks in Sept as new orders slump - PMI

A person crosses a bridge between the buildings of Germany's Bundestag

BERLIN (Reuters) - German manufacturing activity contracted for a third month in a row in September, hurt by a deepening downturn in new orders as the soaring cost of energy set off alarm bells about the outlook for business, a survey showed on Monday.

S&P Global's final Purchasing Managers' Index (PMI) for manufacturing, which accounts for about a fifth of Germany's economy, fell to 47.8, its lowest since June 2020 and down from 49.1 in August. Readings below the 50 mark indicate shrinking activity.

A Reuters poll of analysts had pointed to a September reading of 48.3.

An index of new orders dropped to 39.1 from 40.9, with anecdotal evidence indicating that rising prices and the deteriorating economic outlook prompted a growing number of customers to either postpone or cancel orders.

Phil Smith, Economics Associate Director at S&P Global Market Intelligence, said "the soaring cost of energy, which has already led some businesses to cut production, caused alarm bells, with manufacturers' expectations for future output having plummeted in September following the shutdown of the Nord Stream 1 pipeline."

The Gazprom-led Nord Stream 1 was halted on Aug. 31 for what Gazprom said would be three days of repair work. Gazprom failed to restart flows, however, saying it was unable to carry out the work due to Western sanctions imposed on Moscow.

The Europe Union investigated leaks in the pipeline in the Baltic Sea last week and said it suspected sabotage.

S&P Global's Smith added: "If demand continues falling in the months ahead as businesses are expecting, the pass-through of higher costs will inevitably become more and more difficult, thereby squeezing margins."

(Writing by Paul Carrel; Editing by Hugh Lawson)