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German manufacturing growth slows in August but remains strong, PMI shows

[BERLIN] Growth in German manufacturing slowed in August but remained solid overall, a survey showed on Thursday, a sign that factory activity will support expansion in Europe's largest economy.

Markit's Purchasing Managers' Index (PMI) for manufacturing, which accounts for about a fifth of the economy, edged down to 53.6 in August from 53.8 in July.

That's was in line with a flash reading and well above the 50 line that separates growth from contraction. It was also higher than the long-run average of 51.9, signalling business conditions for manufacturers were improving overall.

"Although the PMI edged down slightly since July, today's survey results highlight that Germany's goods-producing sector remains generally in good shape," Markit economist Oliver Kolodseike said.

The reading gave some relief after last week's Ifo index showed that business morale deteriorated in August, as Britain's vote in June to leave the European Union seemed to weigh on sentiment among German executives.

August's figures for production and new business were some of the strongest reached in the past two years, with foreign demand rising sharply, Kolodseike added.

That contrasted with comments by Anton Boerner, the head of Germany's trade body, BGA. He told Reuters on Monday that the association slashed its 2016 forecast for export growth because of increased external risks, including Brexit.

Economists are divided on how much Britain's vote to leave the EU will weaken German exports and consequently lower growth rates in the coming quarters.

The DIW economic institute expects economic growth to slow to 0.3 per cent in the third quarter from 0.4 per cent in the three months to June, partly because of Brexit. Other analysts have said Germany's vibrant domestic economy could lead to growth of 0.5 per cent in the third quarter.

For 2016 as a whole, the central bank and the government both expect rising private consumption and higher state spending to drive an overall rate of expansion of 1.7 per cent.