German private sector starts 2014 on a high note

Thursday 23 January 2014 18.00
Markit's German preliminary composite Purchasing Managers' Index stood at 55.9 in January
Markit's German preliminary composite Purchasing Managers' Index stood at 55.9 in January

Germany's private sector grew at its fastest pace in more than two and a half years in January as factory orders flooded in, new surveys show.

The data marked a strong start to 2014 for Europe's largest economy.

Markit's preliminary composite Purchasing Managers' Index, which tracks activity in the manufacturing and services sectors and covers more than two-thirds of the economy, stood at 55.9 in January.

This was up from December's reading of 55 and above the 50 mark signalling growth for the ninth month in a row.

While Germany was a growth engine in the early years of the euro zone crisis, its performance tailed off over the last two years and it only managed an expansion of 0.4% in 2013.

Economists are, however, forecasting that gross domestic product (GDP) will grow 1.7% this year. 

"The German economy entered 2014 with a welcome further acceleration of growth. It was manufacturing-led; the service sector was a little bit weaker but still expanding at a reasonable pace," said Markit chief economist Chris Williamson.

He said the survey suggested the economy could expand by up to 0.7% in the first three months of 2014. That would be a strong improvement on the October-December period, when the economy probably grew by around a quarter of a percentage point, according to the Federal Statistics Office.

The manufacturing sector, which struggled in early 2013 but rebounded somewhat in the second half of the year, fared well in the PMI survey.

The sub-index for the sector rose to 56.3 from 54.3 in December, marking the seventh month of growth in a row.
It was the highest reading since May 2011 and beat all forecasts in a Reuters poll.

New business and export orders grew at their quickest rate in nearly three years, while backlogs of work and output also climbed more steeply than at any point since April 2011. Their margins also got a boost as output prices rose more sharply than their input costs.

In a sign of their rising business confidence, factories increased their headcount for a second consecutive month after cutting jobs for much of last year. They also increased their purchasing activity at the fastest pace in over two and a half years.

"With global growth picking up, the German goods-producing sector is starting to fire on four cylinders again," Williamson said.

Germany's services sector expanded for the eighth month in a row, but only very slightly faster than in December.
A sub-index for business activity in the services sector came to 53.6 compared with 53.5 in December, undershooting the consensus forecast in a Reuters poll for 54.

Service providers' new orders flowed in at a slower rate than in December so they resorted to working through backlogs of work, which fell for a second month in a row. Their margins were compressed as their input costs rose more steeply than their output prices.

But companies remained optimistic, with their business expectations rising at their sharpest rate since March due to an upturn in economic conditions and increased new work, and they hired new staff for a third consecutive month.