German private sector shrinks for seventh month

BERLIN Thu Nov 22, 2012 8:42am GMT

BERLIN (Reuters) - German business activity shrank for the seventh straight month in November, with the services sector contracting at its fastest rate in 3-1/2 years as the euro zone crisis pounds Europe's largest economy, a survey showed.

Markit's composite Purchasing Managers' Index, measuring activity in both manufacturing and services, edged up to 47.9 in November from 47.7 the previous month but remained below the 50 mark that separates growth from contraction, a flash estimate showed on Thursday.

"The picture emerging from November's survey is that the German economy will end the year with a whimper rather than a bang as troubles in the euro zone continue to weigh on domestic business and consumer confidence," said Tim Moore, senior economist at Markit.

Until this year, Germany largely managed to keep the euro zone's problems at bay, growing by a record 4.2 percent in 2010 and by 3 percent last year even as other euro zone states were in recession and some sought bailouts.

German economic growth slowed to 0.2 percent growth in the third quarter from 0.3 percent in the second, flash data showed last week, and Markit chief economist Chris Williamson said PMI readings from October and November pointed to a fourth-quarter contraction of around 0.3 percent.

That tallies with the Bundesbank's view that Germany will probably lose further momentum at year-end as its economy is now feeling the brunt of the euro zone debt crisis and a global slowdown.

Business activity in the services sector dropped at its fastest rate since the height of the global financial crisis in June 2009, falling to 48.0 in November from 48.4 the previous month. It had been expected to hold steady, according to the consensus forecast in a Reuters poll.

Backlogs of work in the service sector fell more sharply than in October as firms attempted to compensate for a decline in new business by completing existing orders. Service providers shed jobs at the fastest rate since May 2005 in a sign that they see weakness ahead.

Service providers were the most downbeat about business expectations since March 2009 as firms became more worried that clients would slash their budgets next year and that the euro zone crisis would hamper a German recovery.

That tallies with forecasts that the Ifo business climate index, a key barometer of economic health in Germany which is due out on Friday, will slip for a seventh consecutive month in November.

SLIGHT IMPROVEMENT

The weak PMI survey, which Williamson said contained "recessionary signals", comes after a run of poor data which has shown investor morale worsening, joblessness rising, exports falling and industrial orders dropping.

But there was a glimmer of hope in the PMI surveys, with an index tracking the manufacturing sector edging up to 46.8 in November from 46.0 the previous month. It came in slightly above the consensus forecast in a Reuters poll for it to hold steady at 46.0 but remained well below the 50 threshold.

New orders, export orders and output all fell at a slower pace than in October, though stocks of purchases fell at their sharpest rate in three years.

"Firms are just cutting back on costs wherever they can and retrenching because they're worried about the outlook, so there are some signs of bottoming out, but we're not there yet," Williamson said in a telephone interview.

Companies operating in both the services and the manufacturing sectors saw their operating margins squeezed as output prices fell while input prices accelerated, albeit at a slower pace than in October.

Detailed PMI data are only available under licence from Markit and customers need to apply to Markit for a licence.