Germany’s economic activity accelerated in May thanks to better performance in the services sector that outweighed ongoing weakness among the country’s factories.
The economy grew for a fourth straight month in May as the rate of expansion rose to the highest in more than a year, according to business surveys by S&P Global. The expansion was solely driven by a resurgent services sector, however, as manufacturing activity worsened amid a further decline in demand for goods.
“The good condition of the services sector suggests that consumer spending is doing better than expected, despite the inflation driven loss of household purchasing power,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. “Manufacturing, on the other hand, is likely to be dragged down by the slump in Chinese manufacturing that has begun in the second quarter.”
Europe’s biggest economy has been teetering on the edge of recession as it dealt with a sudden transition away from Russian energy supplies. Output shrank in the final three months of last year and data on Thursday will give an updated assessment of the first quarter — after an initial reading showed stagnation in that period.
The poll of purchasing managers by S&P Global confirm the expectation that activity is now gradually picking up, though the continued weakness in manufacturing has raised questions over how durable the rebound will turn out to be.
Sentiment toward the outlook in the sector turned negative for the first time in five months, while services firms remained more optimistic, according to S&P Global.
Price trends also reflected the diverging fortunes, as inflation pressures eased for goods but picked up among services. That came even as input costs weakened, raising the suspicion that “companies in this sector have been able to increase their profit margins on average and are keeping inflation high in this way,” de la Rubia said.
French data earlier showed growth in Europe’s second biggest economy weakening, while activity in Japan’s service and factory sectors expanded in May. Numbers on the whole euro zone, the UK and the US are due later on Tuesday.
--With assistance from Joel Rinneby and Mark Evans.