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German economy held up by services

Thursday, September 20 08:48:46

Germany's private sector shrank for the fifth straight month in September but its services industry saw a modest upturn, indicating that the euro zone's woes are having a relatively limited impact on its largest economy. Markit's composite Purchasing Managers Index (PMI), measuring activity in both manufacturing and services, improved to 49.7 in September from 47.0 last month, a flash estimate showed today, though it stayed slightly below the 50 mark that separates growth from contraction. It was the highest composite reading since April.

Data this month has shown industrial orders, output, exports, imports and investor morale all rising in Europe's economic powerhouse. The services sector fared best in the PMI survey, with business activity increasing to a four-month high of 50.6 in September from 48.3 last month, coming in above the headline forecast in a Reuters poll of 48.5 and rising above the 50 threshold for the first time since July.

" Germany managed to shake off the summertime blues in September, with renewed services growth helping to stabilise private sector output as a whole," said Tim Moore, a senior economist at Markit. But service providers remained downbeat about their future prospects, with a sub-index measuring business expectations in the sector plummeting to 44.4, the lowest since October 2011, compared with 50.9 last month as the euro zone debt crisis and a slowdown in Asia and the U.S. weighed.

Staffing levels in the services sector also fell, down for the first time since April, as companies faced a lack of new orders and became more pessimistic about their future prospects, while backlogs of work fell to their lowest since the height of the financial crisis in July 2009. A PMI index tracking the manufacturing sector climbed to 47.3 in September from 44.7 last month, well above the consensus forecast in a Reuters poll for it to edge up to 45.3. "Manufacturing also made a contribution to the slightly less gloomy picture, albeit simply by achieving a slower contraction of production compared to August," Markit's Moore said. New business decreased across both the manufacturing and services sectors in Germany, although the rate of decline was at its slowest in three months. Backlogs of work also fell to their lowest level since November 2011.

"The halt to the private sector downturn seems to have a fragile veneer, given the reliance on pipeline projects over new business to stabilise output," Moore said. Markit chief economist Chris Williamson said the recent PMI readings pointed to Germany's economy contracting by 0.2 percent in the third quarter. "That quarterly rate will probably ease to around stagnation in September, so there's likely to be an improvement towards the end of the quarter, boding well for the fourth quarter," he said. Germany's economy recovered from the 2008/09 financial crisis rapidly and powered ahead in the first three months of this year but growth slowed to 0.3 percent in the second quarter on the back of a drop in investment. Many experts now expect to see contractions in the third and possibly fourth quarters. ( C ) Reuters