German Economy Loses Pace as New Virus Cases Weigh on Services

German growth momentum slowed in August with activity in services grinding to a halt, highlighting the fragile state of the economy. A Purchasing Managers’ Index for services fell sharply after a resurgence in infections triggered new travel restrictions and a drop in employment damped domestic demand.

Manufacturing continued to improve, registering stronger sales from within the country and abroad. Several respondents to the survey by IHS Markit mentioned increasing orders from China and Turkey.

“Manufacturing was a relative positive, at least in terms of trends in output and new orders,” said Phil Smith, an economist at the London-based firm. “However, the further cutbacks to factory workforce numbers are a reminder that there is still ground to make up and businesses remain under pressure to cut costs.”

Germany, much like the rest of the 19-nation euro area, is only starting to recover from its record slump, with uncertainty about the path extremely high. European Central Bank officials were skeptical at their last meeting about whether activity would continue to pick up, and delayed passing judgment until fresh projections are available in September.

Germany’s composite PMI dropped to 53.7 in August from 55.3 in July. France registered an unexpected contraction in manufacturing this month and only modest growth in services.

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