ADVERTISEMENT

Europe’s Services Become Growth Engine as Factories Struggle

Europe’s Services Become Growth Engine as Factories Struggle

The economic recovery in the euro area’s two largest economies is becoming increasingly reliant on services as widespread supply bottlenecks hold back factories. 

In Germany, services activity held close to July’s record, while momentum in manufacturing -- a key industry -- slowed more than forecast in IHS Markit’s monthly business survey. French services were also more stable in August, benefiting from a pickup in hospitality.

Europe’s Services Become Growth Engine as Factories Struggle

Shifting fortunes were already on display during the second quarter, when tourism-dependent economies such as Italy and Spain took over as growth drivers in Europe. The spread of the delta variant of the coronavirus is now adding uncertainty to the outlook.

In manufacturing, shortages of inputs and transportation logjams are proving stubborn. A poll among German companies showed last week that most of them don’t expect an improvement of the situation this year.

Services in the country have “taken over as the main growth driver, having followed up July’s record expansion with another stellar performance,” said Phil Smith, associate director at IHS Markit. “Many manufacturers remain inhibited by a dearth of materials and components and supply delays.”

Germany’s overall measure of private-sector activity -- the composite Purchasing Managers’ Index -- fell to 60.6 in August from 62.4 last month, a value that still signals a rapid expansion. In France, where some companies reported difficulties related to a new health pass for citizens, the gauge slipped to 55.9 from 56.6.

©2021 Bloomberg L.P.