Germany, France See Services Perking Up as Factories Squeezed

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Europe’s two largest economies reported a hefty rebound in services in May, driving their economic recoveries even as factories battled shortages and delays.

Purchasing managers’ indexes from Germany and France showed private-sector economic activity improving, with companies increasingly confident they’ll soon be able to put the pandemic crisis behind them. Services in both countries expanded at the fastest pace in 10 months.

Manufacturing lost momentum in Germany though, and accelerated only slightly in France. German factories increasingly saw “supply shortages curbing production levels and weighing on new orders due to forced downtime at customers,” said IHS Markit Associate Director Phil Smith.

French firms faced similar supply delays, and also struggled to recruit enough extra staff to keep on top of workloads.

Such shortages are starting to translate to higher prices across the economy. Cost pressures at German factories are “increasingly spreading to services as well, pushing the overall measures of input costs and output prices both to record highs,” Smith said, adding that higher expenses are making some manufacturers reluctant to hire more workers.

“The improved performance in services comes at a crucial time, making up for a further loss of momentum in manufacturing due to worsening supply issues,” he said.

©2021 Bloomberg L.P.