German private sector in two-speed recovery due to coronavirus brakes

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BERLIN (Reuters) – German factories continued to produce goods at a near-record pace in April, while activity in the services sector remained sluggish due to coronavirus brakes, an investigation showed on Friday, giving optimistic outlook for Europe’s largest economy.

IHS Markit’s Flash Purchasing Managers’ Index (PMI) in manufacturing fell only slightly to 66.4 from its record high of 66.6 in March. That beat the forecast of a Reuters poll for a reading of 65.8.

The activity PMI in the service sector fell from 51.5 to 50.1. It was a little lower than expected, but still above the 50 mark that separates growth from contraction.

As a result, the preliminary composite PMI, which tracks the manufacturing and service sectors which together account for more than two-thirds of the German economy, fell to 56.0 from its 37-month high of 57.3 on last month.

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Companies have been hiring new staff at a rate not seen since October 2018 and their backlogs have increased to their highest level in more than 10 years, according to the survey.

A sign of supply chain problems, input prices have peaked for 10 years, but companies have managed to pass their increased costs through higher output prices, suggesting that inflationary pressures may build up. .

“The imbalance of supply and demand in manufacturing supply chains continues to drive up costs for businesses, which are now rising at the fastest rate in more than a decade,” said Phil Smith, analyst at IHS Markit.

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He added, however, that while ex-factory prices increasingly matched the high demand for goods, service companies remained cautious about their prices, meaning that the price spillover effects overall consumption might be limited.

The government is expected to raise its GDP growth forecast for 2021 next Tuesday after Economics Minister Peter Altmaier hinted earlier this month that Berlin was considering an upward revision of its estimate of 3%.

Germany is struggling to contain an aggressive third wave of coronavirus infections, as efforts are complicated by the more contagious B117 variant of the coronavirus and a relatively slow introduction of vaccines.

(Reporting by Michael Nienaber; Editing by Toby Chopra)



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