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Weaker growth in German private sector highlights slowdown risk: PMI

Wednesday, October 5, 2016 - 16:26
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Near-stagnation in German services put the brakes on overall private sector growth in September, a survey showed on Wednesday, highlighting the risk of a slowdown in Europe's biggest economy in the second half of the year.

[BERLIN] Near-stagnation in German services put the brakes on overall private sector growth in September, a survey showed on Wednesday, highlighting the risk of a slowdown in Europe's biggest economy in the second half of the year.

Markit's final composite Purchasing Managers' Index (PMI), tracking activity in the manufacturing and services sectors that together account for more than two-thirds of the economy, fell to 52.8 from 53.3 in August.

The reading was above the 50 line that separates growth from contraction and a tick better than a preliminary estimate of 52.7 but was still the lowest level in 16 months.

The main driver for the relatively weak composite figure was a second consecutive monthly drop in service sector activity. The PMI index for services fell to 50.9 from 51.7 in August, the lowest reading in more than three years, albeit slightly better than the flash reading of 50.6.

Markit economist Oliver Kolodseike said the German services sector was in a waiting position, adding that weaker growth in new orders and lower levels of business outstanding raised the spectre of a weak performance in the coming months.

Service providers continued to hire new staff, however, and growth in manufacturing remained robust, with an already published sub-index for this sector hitting a three-month high in September.

"Although combined data from both sectors are projecting a modest rise in GDP in the third quarter, the PMI results also highlight a risk of a slowdown as we move into the final quarter of the year," Mr Kolodseike concluded.

The German economy grew 0.7 per cent in the first quarter and 0.4 in the second. It is expected to lose some steam in the second half of this year, hampered by sluggish foreign demand.

For the year as a whole, leading economic institutes predict a growth rate of 1.9 per cent, which would be the strongest in five years, mainly driven by soaring private consumption and higher state spending on migrants.

The government will update its own growth forecasts for 2016 and 2017 on Friday. It currently predicts a 1.7 per cent expansion this year and 1.5 per cent next year.

REUTERS