July 3, 2017 / 8:02 AM / in 25 days

German factory growth reaches 74-month high in June: PMI

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FILE PHOTO: An employee of German car manufacturer Mercedes Benz works on the interior of a GLA model at their production line at the factory in Rastatt, Germany, January 22, 2016.Kai Pfaffenbach/File Photo

BERLIN, JULY 3 (Reuters) - German manufacturing growth reached its highest level in more than six years in June, driven by a sharp increase in orders, a survey showed on Monday, suggesting factories will contribute to an expansion in the second quarter.

Markit's Purchasing Managers' Index (PMI) for manufacturing, which accounts for about a fifth of the economy, rose to 59.6 from 59.5 in May to reach its highest level in 74 months.

That was higher than a flash reading of 59.3 and well above the 50 line that separates growth from contraction.

"German manufacturers turned out another impressive performance in June with the PMI rising for the sixth time in seven months to the highest since April 2011," said Markit economist Trevor Balchin.

He added: "The latest PMI data therefore strongly suggest that the manufacturing sector will continue to boost German GDP in the second quarter."

High input prices, which are seen as a threat to the momentum in the sector, eased in June, Markit said. Input price inflation fell from April's 71-month record to the weakest since November 2016. However, it remained higher than the long-run survey average mainly because of higher raw material prices.

Data last week showed German consumer inflation had accelerated unexpectedly in June driven by higher costs for food and services. The figures suggested a solid upswing in Europe's largest economy is slowly pushing up underlying price pressures.

The German economy is enjoying a consumption-driven upswing supported by a robust labor market and an environment of low borrowing costs.

The pace of job creation in the manufacturing sector slowed slightly in June from May's six-year high but firms continued to report having to expand capacity to meet demand.

Manufacturers were also increasingly optimistic regarding the outlook for production and some said they expect stronger demand from Asia and the Middle East.

The Ifo economic institute said last month that vibrant domestic demand and strong export growth fueled by a recovery in the euro zone will boost growth in Germany this year and next, raising its 2017 growth forecast for Europe's largest economy.

Reporting by Joseph Nasr; Editing by Toby Chopra

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