German Economy Takes Another Step on Slow Path to Recovery

(Bloomberg) -- German private-sector activity pointed to further signs of a turnaround from the virus slump, with output contracting in June by the least in four months.

Both manufacturers and service providers saw a gauge for activity improve, even as production remained in decline overall. That suggests both sectors “were seemingly over the worst, but far from firing on all cylinders,” according to Phil Smith, an economist at IHS Markit, which publishes the gauge.

Businesses in Europe’s largest economy have been gradually reopening, although sentiment remains weak and job losses have been on the rise. Investors see signs that the recovery has already started, underscoring hopes that the economy will grow again in the second half of 2020.

A rebound in activity in the near term was expected after the lockdown slump, but there’s still huge uncertainty about the longer-term implications of the virus. Social distancing, consumer worries and other disruptions mean full recovery will take time. An expected increase in unemployment could keep household spending in check, even as measures of confidence improve.

“This is likely to be a protracted recovery as coronavirus-related disruption and uncertainty continue to weigh on demand,” Smith said.

IHS Markit said its composite Purchasing Managers’ Index for Germany came in at a stronger-than-forecast 45.8, above May’s reading of 32.3. In France, the PMI also rose in June, unexpectedly topping the key 50 level that divides growth from contraction.

A gauge for the euro zone is due later on Tuesday.

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