BERLIN (Reuters) - Activity in Germany’s services sector declined at a slower pace in May after a record contraction the previous month as restrictions to contain the coronavirus were lifted, a survey showed on Wednesday.
IHS Markit’s final services Purchasing Managers’ Index (PMI) rose to 32.6 from 16.2 in April, higher than a flash reading of 31.4. The composite PMI index, which covers both the services and manufacturing sectors, rose to 32.3 from 17.4 in April. That was higher than a flash figure of 31.4.
The slower decline in activity did not stop companies from remaining downbeat about the outlook, as new business fell sharply in May, albeit at a slower pace than in the previous month.
“The data show that there is still considerable slack in the economy, and point to the real possibility of a double-digit contraction in the second quarter,” said Phil Smith, principal economist at IHS Markit.
“As such, disinflationary forces still are looming large over the private sector economy, with fierce competition among businesses driving down prices charged for goods and services. Lower costs have so far helped facilitate discounting.”
The travel, restaurant and entertainment sectors have been hit hard by lockdown measures that were introduced in March and which lasted well into April.
Even though restaurants, hotels, fitness studios and some entertainment venues have been allowed to reopen under restrictions, economists say a return to pre-crisis levels of business will be slow.
“There was more bad news for the German labour market in May as job losses continued to mount,” said Smith. “Staff cuts were initially centred on services at the start of lockdown, but here the rate of decline has eased slightly and now been overtaken by manufacturing.”
The government expects the economy to shrink by 6.3% this year, the deepest recession since World War Two, even though an unprecedented rescue package is cushioning the impact of the pandemic.
Reporting by Joseph Nasr; Editing by Catherine Evans