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Output growth slows in Germany, service confidence near five-year high

Staff writer |
The Markit Flash Germany Composite Output Index continued to signal growth of private sector output in Germany at the start of 2016.

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However, at 54.5 in January, down from 55.5 at the end of last year, the index signalled the slowest pace of growth for three months. Service providers reported a further solid, albeit weaker increase in business activity, while manufacturing output rose at the slowest pace for eight months.

Some goods producers blamed a struggling oil industry for the slowdown. The level of new business received by German private sector firms rose for the thirteenth month running in January.

The rate of growth was littlechanged since December and robust overall. Anecdotal evidence attributed higher new orders to the securing of new clients and a relatively mild winter. Foreign markets remained a source of overall new business growth, as manufacturers recorded a further increase in new export orders.

The rate of growth slowed to the weakest since October 2015, however. Latest survey data signalled that Germany’s labour market continued to strengthen at the beginning of the year. Employment rose for the twenty-seventh successive month, although the rate of job creation slowed marginally since December.

Companies hired additional workers in order to increase capacity in the light of rising workloads, according to panel evidence. The rise in staffing levels was insufficient to prevent a further build-up of unfinished business, with backlogs of work accumulating for a sixth month running.

The rate at which business outstanding rose was equal to September’s 52-month record. Meanwhile, January saw input costs at Germany’s private sector firms fall for the first time in nearly a year in January, with manufacturers reporting one of the steepest drops in input prices since the financial crisis.

Panellists largely attributed the fall in input costs to lower prices for energy, oil and some raw materials. Despite input costs declining, companies were able to slightly raise their charges during the month.

The rate of output price inflation was the slowest in 11 months, however. The slowdown in Germany’s manufacturing sector was also highlighted by a weaker rise in purchasing activity. Moreover, goods producers remained cautious about their stock policies, with both pre- and post-production inventories down since the previous month.

German service providers were upbeat about their 12-month prospects for activity, with the level of positive sentiment the highest in almost five years. Optimism was linked to new clients, planned investment, a low global oil price and improved marketing.

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