September 5, 2018 / 8:05 AM / in 19 days

Strong German services point to robust growth in third quarter - PMI

BERLIN (Reuters) - German services growth reached a six-month high in August as firms created jobs at the fastest pace in nearly 11 years, a survey showed on Wednesday, suggesting that a domestically driven upswing will continue in the third quarter.

FILE PHOTO: A waitress serves hamburgers at "Route 66 Diner", which offers American diner food, in Berlin, Germany, August 15, 2018. REUTERS/Fabrizio Bensch/File Photo

Helped by low borrowing costs and a growing population, household consumption, state spending and construction have become important and reliable growth drivers in Europe’s largest economy, providing a buffer against trade-related uncertainties.

IHS Markit’s final composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services sectors that account for more than two-thirds of the economy, rose to 55.6 from 55.0 in July.

The reading, the highest since February, was well above the 50 line that separates growth from contraction but came in slightly below a preliminary estimate published last month.

In services, business activity increased to reach a six-month high at 55.0 in August. Financial and telecommunications companies reported the fastest growth.

A sub-index tracking employment growth in services jumped to 56.8, the highest reading since October 2007.

IHS Markit economist Phil Smith said the survey data pointed to a quarterly growth rate of around 0.5 percent in the third quarter, on a par with the expansion in the April-June period.

“Service providers’ increased appetite for new hires reflected not only rising workloads and increased pressure on capacity, but also a strong belief that growth is set to continue in the year ahead,” Smith said.

BOOMING CONSTRUCTION

Separately, the construction association ZDB on Wednesday raised its forecast for revenue growth in 2018, pointing to surging demand for real estate, higher state spending on construction and low borrowing costs.

“Germany’s booming construction will continue to support overall economic growth,” ZDB managing director Felix Pakleppa said.

Construction sales are now expected to grow 5.5 percent this year, up from the previous forecast of 4 percent. For 2019, ZDB expects nominal sales growth of 5 to 6 percent.

In another sign of optimism, German engineering orders in July rose by 3 percent in real terms from the previous year, industry association VDMA said on Wednesday.

Contracts for “Made in Germany” goods from foreign clients rose 1 percent and domestic demand grew 9 percent, VDMA said. In the less volatile three-month comparison, orders climbed 5 percent on the year in the May-July period.

VDMA economist Ralph Wiechers said the figures showed that German companies so far have managed to remain relatively unhurt from the trade dispute triggered by U.S. President Donald Trump.

“It must not be forgotten to which uncertainties mechanical engineering customers, especially in third countries outside the euro zone, have been exposed in recent months,” Wiechers said.

An increasingly tight job market is adding to wage pressure in Germany. Input prices in services rose at the fastest rate since early 2011, driven by higher labour and transport costs, the PMI survey showed.

“Thankfully for businesses, the strength of domestic demand means that they have been able to pass higher costs back onto clients,” Smith added.

That suggests core inflation in Germany is likely to pick up in coming months, while the headline figure edges down as energy prices fall.

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

To subscribe to the full data, click on the link below: here

For further information, please phone IHS Markit on +800 6275 4800 or email economics@ihsmarkit.com

Reporting by Michael Nienaber, additonal reporting by Riham Alkousaa; editing by Catherine Evans, Larry King

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