Business

German factory growth nears six-year high

Markit’s PMI for manufacturing rises but soaring prices could hit momentum

German inflation slowed more sharply than expected in March. Photograph: iStock

Mon Apr 3 2017 - 09:32

German manufacturing growth reached an almost six-year high in March, driven by a sharp increase in orders for intermediate goods, a survey showed on Monday, suggesting the sector will contribute to an economic expansion in the first quarter.

Markit’s purchasing managers’ index (PMI) for manufacturing, which accounts for about a fifth of the economy, rose to 58.3 from 56.8 in February, its highest in 71 months.

That was unchanged from a flash reading and well above the 50 level that separates growth from contraction.

“German manufacturing ended Q1 with impressive growth, with new export orders in particular increasing at the fastest rate in nearly seven years in March,” Markit economist Trevor Balchin said. “Moreover, manufacturers remain upbeat regarding the 12-month outlook for production.”

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The biggest threat to this growth momentum is soaring input prices, Markit said, citing metals and chemicals as sources of cost pressures.

“Input prices are soaring with the rate of inflation accelerating for an unprecedented eighth consecutive month to the highest in nearly six years,” Mr Balchin said.

“Further down the supply chain, manufacturing output price inflation did not accelerate further in March but remained at an elevated level.”

Monetary stimulus

German inflation slowed more sharply than expected in March. Consumer prices in Europe’s largest economy rose by 1.5 per cent on the year after reaching a 4.5 year high of 2.2 per cent in February, data showed last week.

The data offered some respite to the European Central Bank which has faced calls from Germany to wind down its monetary stimulus.

Mr Balchin said the PMI data suggested the ECB’s monetary policy remained too loose for German conditions.

German manufacturers also increased hiring to meet a growth in new orders from domestic and export markets. Orders rose for the fourth month running, reaching the strongest level in 71 months and driving employment growth in the sector to a 68-month high.

German unemployment fell more than expected in March, data showed last week, signalling that the robust labour market would continue to be the foundation for growth.

The adjusted unemployment rate fell to 5.8 per cent from 5.9 per cent in February, the lowest level since German reunification in 1990. – (Reuters)

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