German service sector remains muted in June on weakness in business, output

Services in Germany remained muted in the month of June on prevailing weakness in business and output, as humming factories in the private sector failed to take up pace, but the index remained stable suggesting Europe's biggest economy probably expanded at a solid rate in the second quarter.

Growth in manufacturing accelerated to 54.4, propelled by the strongest increase in new export orders for more than two years, as demand increased from China and the United States. However, the PMI sub-index for business activity in services slipped to 53.2, hurt by weaker growth in new business and output.

Meanwhile, Markit's flash composite Purchasing Managers' Index (PMI), which tracks the manufacturing and services activity that accounts for more than two-thirds of the German economy, edged down to 54.1 from 54.5 in May. This was below the Reuters consensus forecast for 54.2, but comfortably above the 50-point mark that separates growth from contraction, where it has now been for 38 consecutive months.

The survey by Markit showed that industries and manufacturers remained reluctant towards Britain’s possible exit from the European Union. Employers continued to add to their headcounts and the rate of job creation was the most marked so far this year.

"Producers are enjoying the rising demand in other countries and are not worrying about the United Kingdom," said Chris Williamson, Chief Economist, Markit.

He further added that apart from any unexpected disruption in the UK, the solid and exciting growth is likely to continue in the near term. Markit expects the economy to expand by 0.4 percent in the second quarter.

Furthermore, the survey results remain in tandem with Wednesday’s poll published by the IFO economic institute that found nearly two-thirds of German industrial companies believed a British exit from the European Union would not hurt their business.

Meanwhile, the German economy grew by 0.7 percent in the first quarter, buoyed by higher state and household spending. Growth, however, is expected to slow in the second quarter as foreign trade cools, the Finance Ministry and central bank said on Monday.