German Economy on Track for Positive Growth

Online, September 23, 2013 (Newswire.com) - Germany's private sector grew in September at its fastest rate since January, suggesting Europe's largest economy will grow again this quarter.

Markit's preliminary composite Purchasing Managers' Index (PMI), which tracks growth in both the manufacturing and services sector and covers more than two-thirds of the economy, edged up to 53.8 in September from 53.5 in August. The reading was above the 50 mark that separates growth from contraction for a fifth straight month as firms benefited from an increase in new business, particularly in the service sector.

"Germany's economy remained firmly in recovery mode during September, and its strengthening performance should continue to reverberate across the euro area," said Tim Moore, senior economist at Markit. After shrinking in the fourth quarter of 2012 and suffering a passive start to 2013, the German economy expanded 0.7 per cent in the April to June quarter thanks mainly to domestic demand.

Chris Williamson, chief economist at Markit, said PMI surveys suggested the economy would expand by around 0.4 per cent in the third quarter. Staffing levels across the private sector grew at the fastest pace since March 2012. Williamson said firms were likely to hire more staff in the fourth quarter as they are now taking on more new orders and benefiting from rising backlogs of work. The manufacturing sector expanded for a third consecutive month, though the pace of growth slowed slightly compared with August. A sub-index showed the manufacturing PMI stood at 51.3 in September compared with 51.8 the previous month.

New contracts and orders from abroad both grew at a more restrained pace than in August, with demand from emerging markets waning. Backlogs of work stagnated. Manufacturers' margins were boosted by factory-gate prices rising more steeply than input prices, but in a sign of lingering cautiousness, factories cut jobs for the sixth month in a row. Recent industrial data has been disappointing, with orders and output both dropping in July.

The services sector fared better than manufacturing, with a sub-index tracking business activity in the service sector climbing more steeply than at any time since February to 54.4. Though service providers still suffered from tight margins due to rising input costs and falling output prices, they were sustained by a surge in new contracts, which rose at their fastest rate since January. Staffing levels climbed at their joint-fastest pace since May 2012 as morale among service providers was above the 50 threshold for the 10th month in a row. That chimed with the tone of the latest Ifo business climate survey, which showed morale among firms jumping to its highest level in 16 months.