German private sector grows in Dec but service firms' new work falls: PMI

[BERLIN] German private sector growth picked up slightly in December but service firms saw a decline in new work for the first time in 18 months, a survey showed, suggesting the outlook for this branch of Europe's largest economy is weak in early 2015.

Markit's final composite Purchasing Managers' Index (PMI), which tracks activity in the manufacturing and services sectors that account for more than two-thirds of the economy, rose to 52.0 in December from 51.7 in November.

That was above the key 50 mark that divides growth from contraction and was also higher than the preliminary estimate of 51.4. Markit economist Oliver Kolodseike said the reading suggested Germany's economy would likely expand modestly in the fourth quarter after it skirted a recession in the third. "But, the combination of slow activity growth and a second consecutive fall in total new orders placed with German private sector companies is a reminder of the fragile economic environment facing the euro zone's largest member at the moment," Mr Kolodseike added.

Service sector growth held steady, with a reading of 52.1 - higher than the preliminary estimate of 51.4 - but new work fell for the first time since June 2013, causing firms to work through backlogs of orders instead. "With output growth largely linked to the processing of work outstanding and new business declining for the first time in 18 months, worries mount that service sector activity may come close to stagnation at the start of the New Year", said Oliver Kolodseike, economist at Markit.

Markit said the average reading for the October-December period was the lowest since the third quarter of 2013.

On the bright side, service providers continued to hire new staff and remained optimistic about their future prospects, with more than a quarter of firms surveyed expecting business to pick up over the next year.

Cost inflation for service firms eased as input prices rose less sharply than in November due largely to lower fuel costs while output prices climbed for the first time since September.

REUTERS