German economy remains on growth path for now, survey shows

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The skyline with its financial district is photographed during sunset as the spread of the coronavirus disease (COVID-19) continues in Frankfurt, Germany, October 26, 2020, REUTERS/Kai Pfaffenbach/File Photo GLOBAL BUSINESS WEEK AHEAD

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BERLIN, May 24 (Reuters) - A sustained rebound in services helped business activity in Germany grow again in May, though there are signs that rising prices, market uncertainty and supply problems are starting to put pressure on demand, a preliminary survey showed on Tuesday.

S&P Global's flash Purchasing Managers' Index (PMI) for services was 56.3 in May, down from April's final reading of 57.6 but well above the 50 mark that denotes expansion for the fifth month in a row. Analysts had expected a decline to 57.2.

The flash PMI for manufacturing improved slightly this month, to 54.7 from April's final reading of 54.6, above the 54.0 forecast by analysts in a Reuters poll.

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That also helped the flash composite PMI, which tracks the manufacturing and services sectors that together account for more than two-thirds of the German economy, beat the 54.0 expected by analysts, nudging up to 54.6 from 54.3 in April.

Phil Smith, economics associate director at S&P Global, said the survey suggested manufacturers were going through order backlogs to support output after new orders fell at the quickest rate since June 2020, with new export orders particularly hit.

The roughly 800 businesses surveyed said uncertainty among clients, strong price pressures, supply disruption and COVID-related lockdowns in China had weighed on demand for goods.

"A post-lockdown recovery in services activity continues to provide a strong tailwind for the German economy," he said.

"However, goods producers are increasingly turning to backlogs of work to support output as new orders show a sustained decline, boding ill for growth prospects in the sector if demand for goods continues to falter," Smith added.

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Reporting by Miranda Murray; Editing by Catherine Evans

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