German Economy Shows Resilience to Renewed Virus Slump

The German economy displayed resilience last month in the face of new virus restrictions, with manufacturing recording solid growth and joblessness unexpectedly declining.

Although restaurants, bars, gyms and cultural venues are closed to try to limit the spread of the coronavirus, factories are benefiting from a rebound in global trade, data released on Tuesday showed. In a separate release, unemployment dropped for a fifth month.

Germany’s stronger industrial performance is widening the gap between Europe’s largest economy and the rest of the region. Manufacturing in France and Spain contracted in November.

German Economy Shows Resilience to Renewed Virus Slump

“Germany was once again the main engine behind the region’s expansion,” said Chris Williamson, chief business economist at IHS Markit. The divergence in terms of production growth “is now the widest on record.”

Germany’s factory Purchasing Managers’ Index was at 57.8 in November, just below October’s 58.2, and well ahead of the euro-area reading of 53.8. Respondents to IHS Markit’s monthly survey pointed to export demand across Europe and from China.

A similar divergence is on display across the wider economy. German output may shrink less than 6% this year, according to a Bloomberg survey of economists, compared with 7.3% for the euro area and more than 9% for France.

There were signs of the service-sector weakness creeping into German manufacturing. Closures across the hospitality sector have hit consumer goods production, according to IHS Markit, and factories continued to trim headcount to reduce costs.

German Economy Shows Resilience to Renewed Virus Slump

Large parts of the job market are also being propped up by government subsidies. An increasing share of companies is relying on furlough programs to pay their workers, according to the Ifo Institute, which estimates that 28% of businesses made use of the state aid last month.

That means any resulting labor market strains could still materialize in coming months. Three in four hotels consider the crisis an existential threat, and business confidence across all sectors of the economy dropped for a second month in November.

©2020 Bloomberg L.P.

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