German private sector buoyant but growth slows in January

Growth in Germany’s private sector slowed slightly in January, a survey showed on Tuesday, as weaker expansion by companies providing services negated a solid improvement in manufacturing in Europe’s biggest economy.

Markit’s flash composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services sectors that account for more than two-thirds of the economy, edged down to 54.7 in the first month of 2017 from 55.2 in December. The reading, a four-month low, was below the consensus forecast in a Reuters poll of economists but comfortably above the 50 mark that separates growth from contraction.

The survey showed activity among manufacturers accelerated more strongly than expected to 56.5, a 36-month high, thanks to stronger demand from home and abroad.

The solid reading was not enough to offset a drop in services activity to a four-month-low reading of 53.2.

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Markit said the slower growth in services was no reason for alarm.

"Growth remained solid overall, and firms were sufficiently encouraged to raise employment substantially," said IHS Markit economist Philip Leake.

Companies said, however, that cost pressures continued to mount. Input prices rose at the sharpest pace in more than 5½ years mainly on higher oil and metals prices but also a weaker euro resulted in costlier imports.

“However, clients are yet to bear the full impact of higher costs,” said Leake. “Charges rose more slowly amid stronger competition and price negotiations.”

Optimistic

The PMI survey added to other data suggesting company executives remain optimistic despite the political uncertainty linked to Britain's decision to leave the EU and the election of Donald Trump as US president.

Business morale in Germany rose in December and the mood among German analysts and investors improved this month about the economy's growth prospects.

“Looking ahead, German companies are increasingly optimistic,” Mr Leake said. “Both manufacturers and service providers anticipate healthy growth in 2017.”

He added that Markit expects German growth of 1.9 per cent this year, matching last year’s rate. This is higher than the German government’s own estimate of 1.4 per cent growth.

Reuters