Germany's private sector expanded for a third consecutive month in July as the manufacturing sector returned to growth, a survey showed on Wednesday. The data suggests Europe's largest economy is recovering after losing steam late last year and struggling in early 2013.
Markit's preliminary composite Purchasing Managers' Index (PMI), measuring growth in both the manufacturing and services sector and covering more than two-thirds of the economy, rose to 52.8 in July, its highest in five months, from 50.4 in June. The reading, which came in above the 50 mark that separates growth from contraction, indicates the German economy could grow by up to 0.4 percent in the third quarter, Markit chief economist Chris Williamson said.
The German economy held up well during the early years of the euro zone crisis but growth has since slowed and it only narrowly skirted a recession in early 2013 thanks to private consumption. The survey released on Wednesday showed new orders in the private sector rose above 50 for the first time in five months and firms hired new staff, ending a two-month run of job cuts.
"Germany's private sector shook off its recent bout of malaise in July, as stronger manufacturing and services growth underpinned the fastest pace of output expansion for five months," said Tim Moore, senior economist at Markit. "The return to new business growth sets a positive tone at the start of the third quarter and a rebound in employment numbers adds to the air of positivity in the latest figures."
A sub-index tracking the manufacturing sector, which had a bad start to the year, rose to 50.3, climbing back above the 50 mark for the first time since February and beating even the highest forecast in a Reuters poll for a reading of 50.0. Factories' output increased as they worked through backlogs and took on more new orders as euro zone and domestic demand improved, although contracts from abroad remained weak.
Williamson said this was probably due to emerging markets' fading appetite for investment goods and Germany losing out to the United Kingdom and Japan, which are benefiting from depreciations in their currencies. Manufacturers profited from lower raw material prices, with input prices falling more sharply than factory-gate prices and therefore reducing the squeeze on operating margins. They cut jobs for a fourth straight month.
The services sector fared well, with an index measuring business activity increasing to 52.5 in July, its highest level in five months, as firms received more new orders, hired more staff and business expectations brightened. "(Firms are) seeing more enquiries, more orders being placed and they're also being more aggressive in their own marketing (and) advertising, so they're hoping to feed off that as the year goes on," Williamson said. But service providers faced the steepest rate of cost inflation since March 2012, with input prices increasing more sharply than output prices.
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