Services sector shields German economy

IHS Markit’s composite PMI rose to a six-month high reading of 55.7 in August from 55.0 in July

Germany’s services sector continues to provide a temporary cushion to the economy against a cooling trend in manufacturing, a survey showed yesterday, confirming the vulnerability of the world’s export champion to rising trade frictions.

IHS Markit’s flash composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services sectors that account for more than two-thirds of the economy, rose to a six-month high reading of 55.7 in August from 55.0 in July.

An index measuring manufacturing activity fell to 56.1 from 56.9 in July, the lowest reading in two months. The index for services rose to a six-month high of 55.2 from 54.1.

The figures reflected a cooling trend in the manufacturing sector that started this year after an all-time high reading in December 2017.

Economists attribute this partly to the increasingly protectionist policies of the US President Donald Trump, which have clouded the outlook for Germany’s exportdependent manufacturers.

Chris Williamson, chief business economist at IHS Markit, said if the cooling trend in manufacturing is not reversed, the slowdown would soon spread to the services sector.

“We do think the weakening manufacturing trend will continue, unless of course there is a turnaround in new orders,” he said. “The question is: how long will the services sector remain robust in the face of the deteriorating manufacturing trend?” He added: “History tells us that when manufacturing turns down services sooner or later follow it down.”

IHS Markit expect the German economy to expand by 0.5 per cent in the third quarter, on a par with the growth rate recorded in the April June period.