German private sector growth hits year-high in July

Stronger growth in services boosted German private sector activity to its highest this year in July, a survey showed on Wednesday, but some companies were less optimistic following Britain’s vote to leave the EU.

Markit’s final composite Purchasing Managers’ Index (PMI), tracking activity in manufacturing and services that together account for more than two-thirds of the economy, rose to 55.3 from 54.4 in June. The reading was unchanged from the preliminary estimate and was comfortably above the 50 line that separates growth from contraction.

The PMI sub-index for services rose to a two-month high of 54.4 in July from 53.7 in June.

"Germany's service sector continued to grow at the start of the third quarter with the underlying trend pace broadly in line with that seen over the past three years," Markit economist Oliver Kolodseike said.

Brexit

While companies generally expect their levels of activity to keep rising over the next year, positive sentiment fell to an eight-month low with concern about the consequences of June’s Brexit vote acting as a dampener, Kolodseike added.

Nonetheless, service providers saw an increase in activity and new orders at the start of the third quarter, prompting them to add staff, with the pace of job creation hitting its strongest level this year.

Private consumption, supported by record-low unemployment, has been a key pillar of growth this year, helping to offset weaker exports. The German government is forecasting economic expansion of 1.7 per cent in 2016, on a par with last year.

Reuters