German's private sector recovery slows as services struggle: Purchasing Managers' Index

The recovery of Germany's services sector from the coronavirus shock lost steam in August, slowing the broader rebound of the private sector in Europe's largest economy, a survey showed on Thursday.

IHS Markit's final services Purchasing Managers' Index (PMI) fell to 52.5 from its 13-month high of 55.6 in July.

That was higher than a flash reading of 50.8 and it marked the second month in a row that the services index was above the 50-mark dividing growth from contraction.

The final composite PMI covering both the services and manufacturing sectors eased to 54.4 from 55.3 the previous month. That was higher than the flash figure of 53.7.

IHS Markit economist Phil Smith said the survey data showed that the economic progress in August was only gradual and predominantly driven by domestic demand, which itself was weakened by job losses during the pandemic.

"However, the picture on the employment front is starting to look a little more encouraging, with some signs of hiring in the service sector accompanied by an easing rate of retrenchment across manufacturing," Smith added.

He also pointed to the government's latest decision to expand the Kurzarbeit shorter-hours work scheme until the end of next year, which is expected to further stabilise the labour market and with its domestic demand.

The German economy contracted by a record 9.7 per cent in the second quarter as consumer spending, company investment and exports all collapsed at the height of the pandemic.

The government on Tuesday forecast the economy would shrink 5.8 per cent in 2020, less than its previous outlook of a 6.3 per cent downturn although still the biggest contraction since World War II.