BERLIN – Activity in the German service sector declined at a slower pace in May after a record contraction the previous month due to restrictions on loading of coronavirus lifted, a survey showed on Wednesday.
The IHS Markit’s Purchasing Managers’ Index (PMI) final service rose to 32.6 from 16.2 in April, higher than the fast reading of 31.4. The composite PMI index, which covers the service and manufacturing sectors, rose to 32.3 from 17.4 in April. That’s higher than the flash number 31.4.
A slower decline in activity did not stop companies from remaining gloomy about the outlook, as new business fell sharply in May, albeit at a slower pace than in the previous month.
“Data shows that there is still some leeway in the economy, and shows the real possibility of a double digit contraction in the second quarter,” said Phil Smith, chief economist at IHS Markit.
“As such, the power of disinflation still overshadows the private sector economy, with stiff competition among businesses which reduces the prices charged for goods and services. Lower costs have so far helped facilitate discounts.”
The travel, restaurant and entertainment sectors have been hit hard by locking measures introduced in March and which lasted until April.
Although restaurants, hotels, fitness studios, and some entertainment venues have been permitted to reopen below limits, economists say returns to business levels before the crisis will be slow.
“There was more bad news for the German labor market in May because job losses continued to increase,” Smith said. “Staff cuts were initially centered on service at the start of the lockdown, but here the rate of decline has been slightly reduced and has now been taken over by manufacturing.”
The government expects the economy to shrink 6.3% this year, the deepest recession since World War II, although an unprecedented rescue package dampens the impact of the pandemic.
(Reporting by Joseph Nasr; Editing by Catherine Evans)
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