German private sector expands most in a year

BERLIN Thu Jan 24, 2013 8:52am GMT

BERLIN (Reuters) - German private sector activity jumped to its highest level in a year in January on brisk services business, a survey showed on Thursday, suggesting Europe's largest economy turned a corner at the end of last year.

Markit's composite Purchasing Manager's Index, measuring activity in both manufacturing and services, leaped to 53.6 in January from 50.3 in December, staying above the 50-point line that separates growth from contraction for the second month in a row.

The flash estimate also showed the services sector expanded for the second consecutive month, rising to a 19-month high of 55.3, well above the 52.0 logged in December and the consensus forecast for no change in a Reuters poll of 20 economists.

After proving immune to the euro zone crisis for much of its first 2-1/2 years, Germany's economic growth nearly stalled in the third quarter. It is expected to have contracted in the final quarter, however, as trade with Germany's peers suffered.

"Any disappointment in fourth-quarter growth will be the worst we see in the current economic cycle, and the GDP numbers for the first quarter are going to show a rebound," said Chris Williamson, economist at Markit.

"At the moment we expect quarterly growth of around 0.3 percent, but if we continue to see rises in PMI in February and March, we could see an even stronger recovery from the fourth-quarter disappointment."

Germany's government cut its 2013 growth forecast to 0.4 percent earlier this month after saying the economy likely shrank by 0.5 percent in the final quarter of last year as traditionally strong exports and investment slowed.

Activity in the manufacturing sector picked up, climbing to 48.8 from 46.0, although it remained in contraction territory, which it dropped into last March. A return to growth in output boded well for the months ahead.

The manufacturers' new export orders index rose to 48.2 from 43.8, their strongest level since June 2011.

"Exports are still acting as a drag, but much less so than they have been in prior months," Williamson said.

A slew of upbeat data so far this month have fuelled the view that the new year will see a rebound as low financing costs give companies incentives to invest again, while firms expect that the worst of the euro crisis may be behind them.

In line with that, expectations in the services sector, pointing to business in a year's time, rose to their highest level since May last year after shifting to growth again in December.