German private sector growth eased slightly in the first month of 2017, with a growth slowdown at service providers offsetting a firmer improvement in manufacturing performance.
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At 54.7, the Markit Flash Germany Composite Output Index still pointed to robust growth in January that was faster than the 2016 average (54.3). However, the latest reading was down from 55.2 in December and the lowest in four months.
Mirroring the overall trend, growth of services activity slipped to a four-month low. In contrast, manufacturers saw December’s acceleration sustained through to January.
Production increased to the greatest extent in close to three years. Underpinning higher private sector output was another solid increase in new business during January.
The rate of growth was unchanged from that seen in the prior two months. As was the case with activity, manufacturers outperformed service providers with regard to new order growth. New export work in the goods producing sector rose at the steepest rate since September 2016.
Despite robust growth of new work, volumes of outstanding business at German private sector firms rose only fractionally.
Capacity pressures remained substantial in the manufacturing sector, but services companies were able to work through their backlogs for the first time in three months. Employment was a bright spot in January.
The rate of job creation was the second-quickest since September 2011, just behind October’s 61-month peak. A number of panellists mentioned hiring in line with growth expectations for 2017.
On the price front, cost pressures in Germany’s private sector continued to mount. Input prices rose at the sharpest pace in over five-and-a-half years, led by a particularly steep rise in manufacturers’ costs.
Anecdotal evidence showed that goods producers had been most affected by higher commodity prices (notably oil and metals).
There were also reports of a weaker euro relative to the U.S. dollar leading to greater import costs. January data indicated that higher costs were only partially passed on to clients.
The rate of charge inflation eased slightly, with firms commenting on competitive pressures and price negotiations. ■