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Buoyant German services compensate for contracting manufacturing – PMI

Activity in Germany’s services sector rose to a seven-month high in April, a survey showed on Thursday, adding to expectations that Europe’s biggest economy will get impetus from its domestic market as falling exports hurt its manufacturers.

IHS Markit’s flash composite Purchasing Managers’ Index (PMI) measuring activity in the services and manufacturing sectors that together account for more than two-thirds of the economy rebounded to 52.1.

The bounce back was mainly driven by services where activity was measured at 55.6, the highest reading since September 2018.

The manufacturing sector shrank for the fourth month in a row, however, although the contraction was slightly smaller than in March.

Activity in the sector was measured at 44.5, well below the 50.0 mark separating growth from contraction but above than the 44.1 reading recorded last month. It was the first month-on-month rise in nine months.

“With new orders falling at the rate they are, we expect that the contraction in the goods producing sector in Germany will remain quite fierce in the coming months,” said Markit economist Chris Williamson.

After nine successive years of growth, the German economy is facing headwinds from trade disputes between the United States and both China and the European Union as well as slowing economic activity in the euro zone.

This has prompted the government to slash its growth forecast for this year for the second time in three months. On Wednesday it said it had halved its 2019 growth estimate to 0.5 percent.

The diverging trends in Germany’s manufacturing and services sectors were also evident in employment activity.

The survey showed that manufacturers maintained a stable level of staff in April, after laying people off in the previous month for the first time in three years.

By contrast, companies in the services sector saw a hiring expansion in April that was bigger than that recorded in March.

Germany narrowly avoided a recession in the fourth quarter, and the economy has been relying on consumption for growth. A robust labour market, rising wages and low interest rates have been supporting the consumption-driven cycle.

“Amid reports of a declining car industry, strong competition across Europe and generally subdued global demand, the data showed another steep drop in German goods exports and the lowest confidence among manufacturers for six-and-a-half years,” said Phil Smith, principal economist at IHS Markit.

“The survey continues to highlight strong job creation across the service sector, which is in turn supporting wage growth and means we should see consumer demand continue to rise during the second quarter.”
Source: Reuters (Reporting by Joseph Nasr; Editing by Hugh Lawson)

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