German manufacturing shrinks at fastest pace in three years

Berlin Mon Jul 2, 2012 4:03am EDT

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Berlin (Reuters) - Germany's manufacturing sector shrank in June at the fastest pace in three years, with new business intake dropping for the 12th month running, in a sign the economy is suffering from both the euro crisis and a broader global economic slowdown.

Markit's manufacturing Purchasing Managers Index (PMI) slid to 45.0 in June from 45.2 in May, registering the fastest decline in the sector since June 2009, final data showed on Monday. The figure was just above a flash estimate of 44.7.

Manufacturers saw the sharpest deterioration in overall business conditions for three years in June as an abrupt and broadening global economic slowdown pulled the rug from under the export-led recovery," said Markit economist Tim Moore.

With weakening export markets putting manufacturers on the defensive, job cuts continued and inventory reductions gathered pace," he added.

New orders from abroad dropped at the second-fastest rate since May 2009 due to lower spending in Europe and a slowdown in Chinese demand, according to Markit.

Europe's economic powerhouse has managed to remain resilient throughout much of the debt crisis but recent data have suggested that it is losing stamina and may even have contracted in the second quarter of 2012 after growing 0.5 percent in the first three months.

Exports slid for in April the first time since December 2011, falling 1.7 percent.

Input buying fell sharply during June and at a rate last seen in mid-2009, which in turn helped improve supplier lead-times and contributed to the steepest drop in input pr ices for almost three years," Moore said.

Cost burdens in the German manufacturing sector fell sharply in June for the first time in 2012 and at the fastest pace since August 2009. Firms pointed to lower prices for a wide range of raw materials, reflecting weaker global demand for inputs.

Data showed last week that German annual inflation decelerated in June to its lowest rate in 18 months.

Easing inflation should give a boost to German private consumption, which is expected to be the economy's saving grace on the back of a solid labor market this year as exports slow.

However, employment levels in the manufacturing sector declined for the third month running in June, at the fastest rate since February 2010.

Data last week showed that German joblessness rose for the third month in a row in June, though it remains close to post-reunification lows.

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(Editing by Gareth Jones and Toby Chopra)

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