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German services shrank in Oct even before partial lockdown: PMI

FILE PHOTO: An employee works in the warehouse for medical equipment of logistics company Fiege in Apfelstaedt near Erfurt, Germany, April 3, 2020, as the spread of the coronavirus disease (COVID-19) continues. Martin Schutt/Pool via REUTERS

BERLIN (Reuters) - German services activity shrank for the first time in four months in October, a sign that Europe’s largest economy was struggling even before a partial lockdown was imposed to break a second wave of coronavirus infections, a survey showed.

IHS Markit’s final services Purchasing Managers’ Index (PMI) fell to 49.5 from 50.6 in the previous month.

The reading, published on Wednesday, came in higher than a flash estimate of 48.9 but still marked the first month since June that the services index was below the 50 mark dividing growth from contraction.

The biggest drops were reported by hotels and restaurants, which were hit by travel curbs and local curfews in October. Transportation and storage providers also registered weaker activity.

“As many businesses close their doors again during November and virus cases continue to rise, a double dip in economic activity is looking increasingly likely,” IHS Markit economist Phil Smith said.

Germany entered a partial lockdown on Monday at least until the end of November, forcing bars, restaurants, gyms, cinemas, theatres and domestic tourism to close. Shops can remain open under conditions to guarantee social distancing.

But the drop in services activity was offset, by robust growth in manufacturing in October and the final composite PMI, which covers both sectors of the economy, rose to 55.0 from 54.7 in September. That was higher than the flash figure of 54.5.

The German economy grew by a record 8.2% in the third quarter as higher consumer spending and exports helped Europe’s largest economy start to recover from its worst-ever recession, caused by the pandemic.

Economists expect the economy to stagnate or even shrink again in the fourth quarter, however, due to the new lockdown measures.

Reporting by Michael Nienaber, Editing by Catherine Evans

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