Service Providers Benefit: German Economy Surprisingly Strong

Status: 04/22/2022 14:40

Despite inflation and the war in the Ukraine, the German economy has barely lost momentum. The eurozone is even gaining momentum. Service providers in particular are thriving, but it’s too early to give the go-ahead.

The German economy barely lost momentum in April despite rising inflation and high levels of uncertainty in the wake of Russia’s war against Ukraine. The Purchasing Managers’ Index for the private sector, that is, for industry and service providers combined, fell 0.6 point to 54.5 points, financial services provider S&P Global reported. However, experts expected a clearer fall.

Therefore, the barometer remains well above the 50 mark, at which point it indicates growth. The data is collected through a monthly survey of hundreds of companies.

Service provider important economic pillar

Experts point to a questionable process: “Developments in industry and the service sector are increasingly divergent,” comments S&P Global economist Phil Smith on the development. “While the services sector has continued to gain momentum from the easing of coronavirus restrictions and the resulting recovery, industrial production has fallen due to a combination of further supply disruptions and falling demand for manufactured goods.” .

The resurgence of service providers is a major pillar of the economy at the moment, “however, the lifting of most restrictions and the associated rebound should only boost growth temporarily,” Smith warned at the same time. Furthermore, it cannot be ruled out that a longer recession in the industry will also spread to service providers.

Highest level in seven months

Data from the euro zone is even more positive. Despite the Russian attack on Ukraine, the economy surprisingly gained momentum in April, with the corresponding Purchasing Managers’ Index rising 0.9 to 55.8 points, S&P Global reported. This is the highest level in seven months.

In the euro zone, the general development is similar to that in Germany: a two-speed economy has emerged, explains S&P Global Chief Economist Chris Williamson: “Industrial production emerged through persistent supply bottlenecks, increased prices and signs that the willingness to spend is weakening in risk aversion related to the war was affected, almost to a standstill. On the other hand, service providers increased markedly, buoyed by the easing of corona restrictions. A record increase was recorded in spending on travel and leisure activities.

exaggerated concerns?

Experts were positively surprised by the strong Purchasing Managers’ Indexes. The data suggests that concerns about the fallout from last month’s Ukraine war may have been overblown, said Jessica Hinds, an analyst at Capital Economics.

Marco Wagner, analyst at Commerzbank, believes that the framework conditions that usually determine the economy remain good. “Order books are well filled, the comparatively low value of the euro supports export demand, many government investment programs are in place and, despite the ECB’s forthcoming change in monetary policy, interest rates remain relatively low.” “.

Christoph Swonke, analyst at DZ Bank remains pessimistic: “The headwind for the economy in Germany is high and will not abate anytime soon.”

The ECB becomes more skeptical

And indeed, the economic situation remains difficult. The European Central Bank (ECB) could further lower its growth forecast for the euro zone due to the war in Ukraine. Risks to growth are on the downside, ECB President Christine Lagarde said yesterday. For inflation, on the other hand, the risks are on the upside.

In addition, the International Monetary Fund (IMF) pointed out that a prolonged recession in China would leave significant signs of a slowdown in the global economy. The global impact would be significant, IMF chief Kristalina Georgieva said. China’s Covid zero strategy is currently paralyzing port operations in Shanghai, with serious economic consequences.

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