German services growth slows more than expected

German services growth slowed more than expected in August, reaching its lowest level in more than three years and limiting overall business activity, a survey showed on Monday, in a sign that Europe’s biggest economy may be losing steam.

Markit’s final composite Purchasing Managers’ Index (PMI), tracking the activity in manufacturing and services that together account for more than two-thirds of the economy, fell to 53.3 from 55.3 in July.

The reading was still comfortably above the 50 line that separates growth from contraction, but it marked a downward revision from the preliminary estimate of 54.4.

The reason for the revised composite figure was a drop in service sector activity: the PMI sub-index for services plunged to a 37-month low of 51.7 in August from 54.4 in July. That was much weaker than the flash reading of 53.3.

"The sharp slowdown in the service sector contrasts with further solid growth at manufacturers, with the goods-producing sector outperforming its counterpart for the third straight month," Markit economist Oliver Kolodseike said.

Slowdown

Service providers were less optimistic, with their business expectations deteriorating to reach the lowest level since October, and companies also reported a slowdown in new business. Still, they continued to hire more staff, with employment growth in services remaining relatively high.

“While we should still expect GDP to expand in the third quarter, recent data suggest that the rate of growth is likely to be uninspiring,” Mr Kolodseike said.

The German economy grew by a solid 1.1 per cent in the first six months of the year, mainly driven by stronger household consumption and higher state spending.

The DIW economic institute expects economic growth to slow to 0.3 per cent in the third quarter from 0.4 per cent in the three months to June.

For 2016 as a whole the government expects domestic demand to drive an overall rate of expansion of 1.7 per cent, on a par with last year. For 2017, Berlin expects a slowdown to 1.5 per cent. – Reuters