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German recovery losing some momentum as services struggle in August: PMI

FILE PHOTO: A homeless man is pictured in front of a pawnshop, amid the coronavirus disease (COVID-19) outbreak in Berlin, Germany, July 30, 2020. REUTERS/Fabrizio Bensch

BERLIN (Reuters) - The recovery of Germany’s private sector from the coronavirus pandemic has slowed in August as activity in the service sector has unexpectedly come to a near standstill, a survey showed on Friday.

IHS 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, fell to 53.7 from 55.3 in July.

The reading was still above the 50 mark that separates growth from contraction, but it came in weaker than a Reuters poll of 55.0 and was the first drop after three months of gains.

The main drag came from the service sector, where the sub-index declined to 50.8 from 55.6.

Manufacturing proved more resilient with the subindex rising to 53.0 from 51.0, reaching its highest level in nearly two years.

IHS Markit economist Phil Smith said activity in the service sector was close to stalling amid renewed travel restrictions and a sustained decline in overall employment that was weakening domestic demand.

In manufacturing, further cuts to factory workforce numbers also showed that “there is still ground to make up and businesses remain under pressure to cut costs”, Smith added.

The German economy, Europe’s largest, contracted at its steepest rate on record in the second quarter as consumer spending, company investment and trade all collapsed during the peak of the pandemic.

Sentiment surveys and recent economic data had pointed to a quick, V-shaped recovery as long as another big wave of new infections and a nationwide lockdown can be avoided in the second half of the year.

Reporting by Michael Nienaber; Editing by Hugh Lawson

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