German factories hum, services shrink in two-speed economy: PMI By Reuters


© Reuters. FILE PHOTO: General view shows restaurant of hotel castle Elmau in Kruen

BERLIN (Reuters) – German private sector activity grew for the fourth month running in October, a survey showed on Friday, but while the manufacturing sector expanded at a faster rate, services activity shrank, suggesting Europe’s largest economy is operating at two speeds.

Markit’s flash composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services sectors that together account for more than two-thirds of the economy, slipped to 54.5 in October from 54.7 the previous month.

The reading surpassed the consensus forecast of analysts polled by Reuters, who expected a decline to 53.2, and was well above the 50 mark that separates growth from contraction.

Manufacturing proved robust, with the flash PMI rising to 58.0, its highest level since April 2018. The service sector contracted, however, with the flash PMI dipping to 48.9.

Markit economist Phil Smith said the survey data pointed to resilience in the economy in the face of a second wave of coronavirus cases, with the decline in service sector activity quite limited so far while manufacturing remained solid.

“It’s increasingly looking like a two-speed economy,” he said. “Manufacturing businesses have been able to continue operating with less disruption from any new restrictions than many of their service sector counterparts, whilst at the same time reaping the benefits of a resurgence in global goods trade.”

“As more manufacturers get back or close to pre-COVID-19 levels of activity, however, sustaining growth is going to become more challenging,” Smith added.

The German government expects gross domestic product to shrink in 2020 by 5.8% before rebounding by 4.4% next year.

Berlin has since March implemented an array of rescue and stimulus measures, financed with record new borrowing of some 218 billion euros, which it hopes will help consumers and companies get out of the crisis more quickly.

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