German private sector growth accelerates in May

Growth in Germany’s private sector accelerated in May to hit the highest level so far this year, a survey showed on Monday, suggesting Europe’s largest economy will extend its surprisingly strong start to the year into the second quarter.

Markit’s flash composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services activity that accounts for more than two-thirds of the German economy, rose to 54.7 in May from 53.6 in April.

This was the highest reading since December 2015 and beat a Reuters consensus forecast of 53.8. The headline figure was comfortably above the 50 line that separates growth from contraction, as it has been for 37 months.

The survey showed that an upturn in the manufacturing industry gained traction in May while growth in services picked up again after having slowed in April.

The PMI sub-index for manufacturing edged up to a five-month high of 52.4 as companies in the sector saw their output rise at the strongest rate so far this year.

The sub-index for business activity in services rose to 55.2, the strongest reading since February, with jobs being created at the fastest rate since December 2015.

Overall, new business in Germany’s private sector grew at a slower pace with some companies attributing the slowdown partly to a weaker rise in new export orders placed with manufacturers.

Job creation accelerated, however, with employment growth hitting the highest level so far this year.

"Rising employment and low interest rates are boosting consumer spending, which seems to be the main growth driver," Markit economist Chris Williamson said.

Based on the May survey, the German economy is likely to grow by 0.4 per cent in the second quarter, Williamson said, adding: “If June also comes in strong, we’re up to 0.5 per cent growth.”

The German economy grew by 0.7 per cent in the first quarter, more than doubling its growth rate and cementing its role as the euro zone’s growth engine, as higher state and household expenditure more than offset a dip in foreign trade.

For 2016 as a whole, the government expects gross domestic product (GDP) to expand by 1.7 per cent, on a par with last year, when growth was driven mainly by strong private consumption and higher state spending.

Reuters