German services lose momentum as catch-up effects wane, supply shortages spill over -PMI

October 5, 2021

BERLIN (Reuters) – Germany’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% quarter-on-quarter rise in GDP in Q3, followed by a 1.2% gain in Q4,” Smith said.

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

The 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. The reading was better than a flash figure of 55.3.

“The 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.

(Reporting by Michael Nienaber, Editing by Catherine Evans)

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