Growth in Germany's private sector picks up to highest in nearly three years - PMI

BERLIN (Reuters) - Growth in Germany’s private sector picked up in February to reach its highest level in nearly three years, driven by humming factories, a survey showed on Tuesday, pointing to a strong first quarter in Europe’s biggest economy.

The city's main shopping street, " Zeil ", is photographed from a tourist platform early evening in Frankfurt, Germany, January 31, 2017. REUTERS/Kai Pfaffenbach

Markit’s flash composite Purchasing Managers’ Index (PMI), rose to 56.1 from 54.8 in January. The index tracks activity in manufacturing and services, which account for more than two-thirds of the German economy.

The reading, comfortably above the 50 line that separates growth from contraction, marked a 34-month high and came in much better than the consensus forecast in a Reuters poll of 54.7.

IHS Markit economist Chris Williamson said the data suggested that the German economy was likely to grow 0.6 percent in the first three months of 2017 after expanding 0.4 percent in the final quarter of 2016.

“This is a broad-based upturn driven by manufacturing, but also helped by Germany’s solid labour market,” Williamson said.

The survey showed growth in manufacturing accelerated for the third consecutive month to reach 57.0, the highest level in nearly six years. Analysts had expected growth in manufacturing to slow to 56.0 after January’s 56.4.

In the service sector, business activity accelerated more strongly than expected to hit a three-month high at 54.4.

Related Coverage

Analysts had expected a weaker pick-up to 53.6 from 53.4 in January.

Reflecting stronger growth in output and new business, firms continued to hire more staff in February, with the overall rate of job creation picking up to reach its highest since June 2011.

The survey also signalled the sharpest increase in both input and output prices since mid-2011, pointing to rising inflation pressure in the euro zone’s biggest economy.

German inflation picked up further in January, to 1.9 percent from 1.7 percent in December, to reach a three-and-a-half-year high and touch the European Central Bank’s target for price stability of just under 2 percent.

The German economy grew by 1.9 percent last year, the strongest rate in half a decade, driven by private consumption, increased state spending on roads and refugees and rising investment in housing.

For this year, the German government expects weaker growth of 1.4 percent, mainly because of weaker exports and fewer workdays.

The Bundesbank has said in its latest monthly report, however, that the German economy will stay on a strong footing in the coming months thanks to high industrial and construction activity.

Reporting by Michael Nienaber, editing by Larry King