Strong German Factories Offset Damage to Services From Virus

(Bloomberg) -- German manufacturing continued its solid recovery from lockdowns earlier this year, offsetting growing weakness elsewhere in the economy.

IHS Markit’s Purchasing Managers’ Index for factories jumped to 58 in October, a 2 1/2-year high, from 56.4 in September. That stood in stark contrast to the services gauge, which fell to 48.9, below the key 50 level that divides expansion from contraction.

The overall composite number for this month was better than economists had forecast. The euro erased losses to trade little changed at $1.1818 as of 8:35 a.m. in London.

The picture of the two-speed economy is being mirrored across Europe, where new restrictions on movement and consumer worries about the coronavirus are taking a harsh toll on hotels, bars and restaurants.
Still, Germany overall looks to be faring better than many other countries. The economy slumped less in the second quarter, and its manufacturing-led recovery looks in better shape.

Employment declined only modestly in October, and businesses were confident enough to start raising prices for the first time in eight months, according to data published Friday.

“Encouragingly, the German economy is showing a degree of resilience,” said IHS Markit economist Phil Smith. Even with the second wave of the virus, the decline in services activity “has so far been quite limited, whilst at the same time the country’s economic performance is being buoyed by a strong showing from manufacturing.”

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