German factories are buzzing, providers are shrinking within the two-speed financial system: PMI

© Reuters. FILE PHOTO: The overall view shows the restaurant of the Elmau hotel castle in Kruen

BERLIN (Reuters) – According to a survey on Friday, the activity of the German private sector grew for the fourth time in a row in October. While manufacturing expanded faster, service activity contracted, suggesting that Europe’s largest economy operates at two speeds.

Markit’s Flash Composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services sectors that together make up more than two-thirds of the economy, fell from 54.7 in the previous month to 54.5 in October.

The value surpassed the consensus forecast of analysts polled by Reuters, who expected a decline to 53.2, and was well above the 50 mark that separates growth from contraction.

Manufacturing was resilient, with the flash PMI rising to 58.0, its highest level since April 2018. However, the services sector contracted, with the flash PMI falling to 48.9.

Markit economist Phil Smith said the survey data indicated the resilience of the economy in the face of a second wave of coronavirus cases, with the decline in service sector activity so far being quite limited while manufacturing remained solid.

“It’s starting to look like a two-course economy,” he said. “Manufacturing has been able to continue its business with less disruption from new restrictions than many of its service counterparts, while taking advantage of a revitalization of global trade in goods.”

“The more manufacturers become active again or near pre-COVID-19 activity levels, the harder it becomes to sustain growth,” added Smith.

The federal government assumes that the gross domestic product will shrink by 5.8% in 2020 before it will rise again by 4.4% next year.

Berlin has implemented a series of rescue and economic measures since March, financed with a record borrowing of around 218 billion euros, to help consumers and companies get out of the crisis faster.

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