Manufacturing Keeps German Economy on a Recovery Path

German factories kept Europe’s biggest economy moving in the right direction this month as virus concerns took a toll on services.
IHS Markit’s manufacturing Purchasing Managers Index jumped to 56.6 in September — the highest in more than two years — from 52.2 in August. In contrast, the services index fell to 49.1, knocking the combined composite gauge to a three-month low.
The report echoed earlier figures out of France, where there was also a divergence between manufacturing and services. The weakness in the latter was linked to the rise in coronavirus cases seen across Europe in recent weeks that pushed countries to impose new restrictions to contain the spread.
The euro slipped a little after the French numbers were published, though recovered again. The currency was at $1.1693 as of 9:34 a.m. Frankfurt time, down 0.1% on the day.
On Tuesday, Germany’s Ifo Institute said the economic slump this year will be smaller than previously anticipated, revising its prediction to minus 5.2%. While noting that manufacturing will benefit from improving global demand, it warned that restrictions on consumer behavior mean some companies won’t survive, with implications for unemployment.
Services “has possibly reached a ceiling thanks to ongoing social restrictions and still-high levels of uncertainty in the economy, including around job security,” said IHS Markit economist Phil Smith. “Manufacturing is still rebounding strongly thanks to in part to improving export demand.”

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