German manufacturers benefit from foreign demand, but services lose steam - PMI

FILE PHOTO: A steel worker of Germany's industrial conglomerate ThyssenKrupp AG stands a mid of emitting sparks of raw iron from a blast furnace at Germany's largest steel factory in Duisburg, Germany. Picture taken January, 28, 2019. REUTERS/Wolfgang Rattay/File Photo

BERLIN (Reuters) - Germany’s private sector continued to recover from the coronavirus shock as foreign demand gave export-oriented manufacturers a boost which helped compensate for weakness in domestically-driven services, a survey showed on Wednesday.

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, edged down to 53.7 in September from 54.4 in the previous month.

This undershot the consensus forecast of analysts who had expected a smaller decline to 54.1, but the reading was well above the 50 mark that separates growth from contraction.

The main drag came from the service sector, where the flash PMI declined to 49.1, its lowest reading since June.

Manufacturing proved more resilient, with the flash PMI rising to 56.6, its highest level in more than two years.

Markit economist Phil Smith said the survey data showed a growing divergence in trends between manufacturing and services.

“Rising numbers of coronavirus cases have coincided with a drop in confidence among service providers, while manufacturers appear to be shaking off any worries about the potential for further restrictions domestically or abroad, with confidence among goods producers improving to the highest for more than 2-1/2 years,” Smith said.

The German government now expects the economy to contract by 5.8%, less than a previous estimate of 6.3%, as the recession triggered by the COVID-19 pandemic in the first half of the year turned out to be less severe than originally feared.

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.

Reporting by Michael Nienaber, Editing by Catherine Evans