German private sector growth strongest in almost six years

Germany’s private sector grew at the fastest pace in nearly six years in March, a survey showed on Friday, driven mainly by strong demand for manufactured goods from the United States, China, Britain, and the Middle East.

The reading suggests that growth in Europe’s largest economy will accelerate in the first quarter.

Markit’s flash composite Purchasing Managers’ Index (PMI), which tracks activity in the manufacturing and services sectors that account for more than two-thirds of the economy, rose to 57.0 from 56.1 in February.

The reading, a 70-month high, overshot the consensus forecast in a Reuters poll of economists and was above the 50 mark that separates growth from contraction.

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The survey showed that activity among manufacturers accelerated to a 71-month high and in the services sector it was the highest rate of growth in 15 months.

“The PMI data strongly suggest that economic growth will accelerate in the first quarter,” said Markit economist Trevor Balchin.

Companies responded to the rising demand by speeding up hiring: the rate of job creation almost matched a record set six years ago.

Inflationary pressures rose again with steel, oil and the strong US dollar cited as key sources of cost pressures, Markit said, forcing companies to partially pass on the higher costs to customers.

Germany’s inflation rate rose to 2.2 per cent in February from 1.9 per cent a month earlier, driven mainly by rising energy and food costs.

Markit said it forecasted headline inflation to reach 2.1 per cent in 2017.

Output expectations also strengthened in March and in the services sector sentiment was strongest in more than six years.

“The March flash PMI results rounded off a strong first quarter for the Germany economy,” Balchin said. -Detailed PMI data are only available under licence from Markit and customers need to apply to Markit for a licence.

Meanwhile, French manufacturers and service providers expressed confidence that upcoming elections won’t disrupt a recovery in the euro area’s second-largest economy.

A Purchasing Managers’ Index for both industries surged to 57.6 in March from 55.9, according to IHS Markit. That’s the highest reading since May 2011.

A gauge for companies’ business outlook strengthened, with those anticipating increasing output over the next year citing strong demand from the US and Asia, as well as “hopes for favorable post-election economic conditions.”

Marine Le Pen, a populist campaigning on an anti-immigration and anti-European Union platform, is neck-and-neck with former economy minister Emmanuel Macron ahead of the first round of presidential elections scheduled for April 23rd.

While no poll sees Le Pen becoming president after a May 7th run-off, uncertainty ahead of the vote has weighed on France’s sovereign-debt yields and put European Central Bank policy makers on alert.

The PMIs “paint a rosy picture of the French private sector,” said Alex Gill, an economist at London-based IHS Markit.

“A high level of business optimism continues to have a positive influence on firms hiring decisions, and can be attributed to a widespread expectation of pro-business policies after May’s presidential elections.”

Economists predict a similar gauge for the euro area will fall to 55.8 from 56.