German Services Lose Momentum as Catch-Up Effects Wane, Supply Shortages Spill Over: PMI

 A woman wearing a protective mask walks past the skyline of the financial district during sunset as the spread of the coronavirus disease (COVID-19) continues in Frankfurt, Germany on Oct. 26, 2020. (Kai Pfaffenbach/Reuters)

BERLIN鈥擥ermany’s services sector activity continued to grow strongly in September, but the recovery from the COVID-19 pandemic lost momentum as catch-up effects are waning and more companies are affected by supply bottlenecks, a survey showed on Tuesday.

IHS Markit’s final Purchasing Managers’ Index (PMI) for the services sector fell to 56.2 from 60.8 in August, still well above the 50 threshold which separates growth from contraction and a bit better than a flash reading of 56.0.

IHS Markit economist Phil Smith said the survey suggested Germany was heading towards a more moderate period of economic growth in the final months of the year.

“Our current forecasts are for a 3.0 percent quarter-on-quarter rise in GDP in Q3, followed by a 1.2 percent gain in Q4,” Smith said.

German economy shrank by 2.0 percent quarter-on-quarter in the first three months of the year and then expanded by 1.6 percent quarter-on-quarter in the three months from April to June.

composite PMI index, which comprises both the services and manufacturing sectors, eased to 55.5 from 60.0 in August, reflecting the continued recovery of the manufacturing sector. reading was better than a flash figure of 55.3.

“ loss of momentum is partly natural as activity gets closer to pre-pandemic levels,” Smith said, adding that the drag on growth from materials shortages was also becoming more noticeable, impacting services firms directly and also via a slowdown in manufacturing.

Coupled with inflationary pressures, the threat of further spillover effects to other parts of the economy is dampening service providers’ growth expectations, Smith said.

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