German manufacturers avoid contraction for first time in 19 months

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Germany’s manufacturing sector stabilised in July, avoiding a contraction for the first time in 19 months, a survey showed on Friday, giving hope for a recovery from a long recession exacerbated by the COVID-19 pandemic.

IHS Markit’s flash manufacturing Purchasing Managers’ Index (PMI) edged up to 50.0 from 45.2 in June, reaching the mark that separates growth from contraction for the first time since December 2018, when actvity grew.

The reading beat the consensus forecast in a Reuters poll of analysts who had expected a smaller rise in the index to 48.0.

The flash composite Purchasing Managers’ Index, which tracks the manufacturing and services sectors that together account for more than two-thirds of the economy, jumped to 55.5, its first expansion since February and above forecasts for a rise to 50.3.

“July’s PMI registered firmly in growth territory and well above expectations, in a clear sign that business conditions are improving across Germany as activity and demand recover,” said Phil Smith, Associate Director at IHS Markit.

“Furthermore, for an economy that is steered so much by exports, it was encouraging to see manufacturers reporting a notable upturn in sales abroad.”

Factories saw the first growth in new orders since September 2018, since when manufacturers in Europe’s largest economy have faced falling demand after Britain’s decision to leave the European Union and trade tensions between the United States and China worsened.

The survey also showed that the services sector, which until the introduction of lockdowns to contain the spread of the coronavirus in March had been compensating for the downturn in manufacturing, had expanded for the first time since February.

Expectations and new orders in the sector also rose and employers hired new staff for the first time since February.

The picture was not so rosy in the manufacturing sector, where the pace of layoffs increased slighly in July, the survey showed. But new export orders rose for the first time since August 2018.

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