Two-Speed Europe Sees Germany Thriving as Rest of Region Suffers

(Bloomberg) -- Germany was the only euro-area country to record solid economic growth in September, with much of the rest of the region suffering amid weakness in services.

While a global trade pickup is helping industry recover from the coronavirus pandemic, benefiting export-oriented Germany, many countries in the region's south are more heavily reliant on tourism and hospitality. Those sectors remain badly affected by the crisis, especially with infections rising again.

Governments are warning against unnecessary travel and imposing new restrictions on restaurants and bars. For Spain and France, that means private-sector output shrank again in September, and activity in Italy practically stalled.

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IHS Markit's composite Purchasing Managers' Index for the 19-country euro area fell to 50.4 from 51.9 in August. While that's slightly better than initial estimate, it indicates only marginal expansion.

“The chances of a renewed downturn in the fourth quarter have clearly risen,” said Chris Williamson, an IHS Markit economist. “Much will depend on whether second waves of virus infections can be controlled, and whether social distancing restrictions can therefore be loosened to allow service sector activity to pick up again.”

Spain's services drop was the steepest in the region, with its gauge falling to 42.4. Weakness was widespread, with only Germany seeing any growth.

European Central Bank officials have expressed concern lately that the economic recovery has flagged, and some have suggested more monetary stimulus might be needed.

Inflation is an additional worry, with consumer prices falling again. According to IHS Markit, companies cut output charges for a seventh straight month.

The Governing Council holds its next policy meeting on Oct. 29, though economists expect the ECB to wait until December before increasing their bond-buying program again.

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