BERLIN, Aug 21 (Reuters) - Germany’s private sector grew for a 16th month running in August, a survey showed on Thursday, suggesting Europe’s largest economy could expand robustly in the third quarter after it suffered a surprise contraction in the second.
Markit’s flash composite Purchasing Managers’ Index (PMI), which tracks growth in the manufacturing and service sectors that make up more than two-thirds of the economy, fell to 54.9 in August from 55.7. But it nonetheless remained well above the crucial 50 mark that separates growth from contraction.
“August’s flash results provide further encouraging news for Germany’s private sector, with output and new orders rising sharply,” said Markit economist Oliver Kolodseike, adding this pointed to Germany returning to growth in the third quarter.
The German economy shrank by 0.2 percent between April and June, its first quarterly contraction in more than a year, due to weak trade, a traditional growth engine, and a decline in construction investment.
Rob Dobson, senior economist at Markit, said recent PMI surveys suggested the economy could pull off a 0.7 percent expansion in the third quarter.
He said there was no widespread evidence of the Ukraine crisis pummelling German companies yet, even though Germany is Russia’s biggest trade partner in the European Union. Some firms, however, were holding off on shipping existing orders to Russia to see if their products would be hit by sanctions, he said.
Business activity in the services sector increased slightly less sharply than in July and service providers were at their least optimistic in almost a year, with some survey respondents saying this was due to the slowing economy and the planned introduction of a minimum wage next year.
But there were some bright spots for service firms - new orders piled in more quickly than in July and providers felt confident enough to continue hiring new staff.
Growth in the manufacturing sector slowed slightly as output and both domestic and export order growth slackened. Factories cut jobs for a third straight month and they put the brakes on their purchasing activity, suggesting they expect output to be weak in the coming months.
But manufacturing firms were able to hike their output prices more sharply while input prices fell, boosting margins.
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