Experts assume that the German economy should at least grow slightly in the coming months. But the gap between the service sector and industry is widening.
With Germany’s economy narrowly escaping a winter recession, the latest data point to subdued growth this quarter and possibly next. S&P Global’s purchasing managers’ index was added today, rising slightly from 0.1 to 54.2 points, its highest level in more than a year. At the same time, the much-noticed leading indicator was above the 50-point threshold for the fourth month in a row, which points to future growth.
Phenomenon observed since autumn
But the confidence of the approximately 800 managers surveyed is distributed very unevenly. The German economy owes its growth prospects solely to the service companies. While the purchasing managers’ index rose by 1.8 to 57.8 points, the highest level in almost two years, the prospects in manufacturing continued to cloud over. Here the barometer fell by 1.6 to 42.9 points, the lowest level in three years.
Industrial companies are thus deep in recessionary territory, while sectors such as retail, consulting and logistics are preventing a slide into recession. The division in the German economy that has been evident since last autumn has thus become much more pronounced.
Private consumption is doing better than expected
How can this be explained? “The good condition of the service sector indicates that private consumption is doing better than expected despite the inflation-related loss of purchasing power in private households,” says Cyrus de la Rubia, chief economist at Hamburg Commercial Bank (HCOB). “The manufacturing sector, on the other hand, will probably be pulled down by the slump in Chinese industry.”
Exports to the People’s Republic had already fallen sharply in March and April. In addition, the continued high energy prices, rising interest rates for the time being and the Ukraine war are likely to cloud the prospects.
Second quarter promises slight growth
Overall, however, the great weight of the service sector ensures moderate growth prospects. Last year, the service providers, who make up a good 80 percent of all companies in Germany, generated 69.3 percent of the gross value added.
The economists at Commerzbank are now assuming growth in gross domestic product of 0.25 percent in the current second quarter. Nevertheless, unlike most economists, the economists expect a slight decline in overall production in the second half of the year.
According to Commerzbank economist Christoph Weil, the massive interest rate hikes of the past few months have left their mark on domestic demand. In the long run, the service sector will “hardly be able to compensate for the looming recession in industry”.