German Factories Led Europe’s Recovery Before Lockdowns Hit

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German manufacturing drove Europe’s uneven recovery in October, a pickup that will almost certainly be derailed now by tough new restrictions to contain Covid-19.

Last month saw a fourth consecutive increase in euro-area factory output, underpinned by stronger demand from within the region and beyond. Companies remained positive about future production, but still continued to cut staff.

German Factories Led Europe’s Recovery Before Lockdowns Hit

“Euro-zone manufacturing boomed in October, with output and order books growing at rates rarely exceeded over the past two decades,” said Chris Williamson, an economist at IHS Markit. “While the data bode well for production during the fourth quarter, the expansion is worryingly uneven.”

Germany was the stand-out performer, benefiting from strong demand for cars, business equipment and machinery. Austria, Italy and Spain also saw solid expansions.

Manufacturing has been relatively resilient in the face of a resurgent pandemic. Reports out of Asia also painted a positive picture in October. Factory growth continued in China, with that economy’s ongoing recovery giving the rest of the region a lift.

Euro-area services, however, have struggled with hesitant consumers, and will see business deteriorate sharply in November when restaurants, hotels and shops will be closed in many parts of the continent.

The European Central Bank has already signaled that more monetary stimulus is on its way in December. Governments have also announced new support to help companies through the crisis and retain jobs, so that consumers can continue to spend.

“While manufacturing as a whole may be booming for now, the sustainability of the recovery will depend on household behavior returning to normal and labor markets strengthening,” said Williamson. “Given second waves of virus infections, this still looks some way off.”

©2020 Bloomberg L.P.

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