German private sector in two-speed recovery due to coronavirus curbs – PMI

German factories continued to churn out goods at a near-record pace in April while activity in the services sector remained sluggish due to coronavirus curbs, a survey showed on Friday, giving an upbeat outlook for Europe’s largest economy.

IHS Markit’s flash Purchasing Managers’ Index (PMI) of activity in the manufacturing sector edged down only slightly to 66.4 from its record high of 66.6 reached in March. This beat a Reuters poll forecast for a reading of 65.8.

The PMI for activity in the services sector fell to 50.1 from 51.5. This was a bit weaker than expected but still above the 50 mark which separates growth from contraction.

As a result, the preliminary composite PMI, which tracks the manufacturing and services sectors that together account for more than two-thirds of the German economy, eased to 56.0 from its 37-month high of 57.3 in the previous month.

Companies hired new staff at a pace not seen since October 2018 and their backlogs of work increased to the highest level in more than 10 years, the survey showed.

In a sign of supply chain problems, input prices hit a 10-year high but firms managed to pass on their increased costs through higher output prices, suggesting that inflationary pressures could be building up.

“The imbalance of demand and supply across manufacturing supply chains continues to drive up businesses’ costs, which are now rising at the fastest rate for more than a decade,” IHS Markit analyst Phil Smith said.

He added, however, that while factory gate prices were more and more in line with strong demand for goods, services firms remained cautious with their pricing, meaning that the spillover effects to overall consumer prices could be limited.

The government is expected to raise its 2021 GDP growth forecast next Tuesday after Economy Minister Peter Altmaier hinted earlier this month that Berlin was mulling an upward-revision to its 3% estimate.

Germany is struggling to contain an aggressive third wave of coronavirus infections as efforts are complicated by the more contagious B117 variant of the coronavirus and a relatively slow introduction of vaccines.
Source: Reuters (Reporting by Michael Nienaber; Editing by Toby Chopra)