Germany, France see services improve as factories contract
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Europe’s two largest economies reported a significant rebound in services in May, boosting their economic recovery even as factories battled shortages and delays.
The purchasing managers’ indices from Germany and France have shown that economic activity in the private sector is improving, with companies increasingly convinced that they can soon end the pandemic crisis. Services in both countries have grown at the fastest pace in 10 months.
Manufacturing lost momentum in Germany, however, and accelerated only slightly in France. German factories were increasingly seeing “supply shortages hampering production levels and weighing on new orders due to forced customer downtime,” said Phil Smith, associate director of IHS Markit.
French companies have faced similar supply delays and have also struggled to recruit enough additional staff to keep their workloads under control.
These shortages are starting to translate into higher prices throughout the economy. Cost pressures at German factories “are spreading more and more to services as well, pushing aggregate input cost and producer price measures to record levels,” Smith said, adding that higher spending make some manufacturers reluctant to hire more workers.
“The improvement in service performance comes at a critical time, offsetting a further loss of momentum in manufacturing due to worsening supply issues,” he said.
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