Germany’s private sector output growth accelerates in July

German private sector output growth is likely to have accelerated at the beginning of third quarter, as emphasized by the Markit Flash Germany Composite Output Index that rose to 55.3 in July from 54.4 in June. This is the highest level in 2016 so far. Both service providers and manufacturers have reported solid growth.

The new business trend continued to be positive in July, with firms recording increase in new workloads for the 19th consecutive month. Certain panellists mentioned strong demand from foreign markets. Admittedly, manufacturers have recorded a strong rise in new export orders with the growth rate second-best in nearly two-and-a-half years, stated Markit.

Firms in Germany continued to employ new staff in July in a bid to raise capacity in their units. Service providers recorded a solid increase in hiring. With the sharp increase in employment levels, the pace of backlogs work accumulated decelerated noticeably in July and was fractional overall.

Meanwhile, input cost inflation accelerated slightly, with the pace highest since May 2015. It is the first time in a year that service providers as well as manufacturers reported a rise in input prices. Anecdotal evidence partially attributes this to increased steel prices, rising wages and raw material shortages.

Several companies have passed the higher input costs to their clients, leading to an overall increase in output prices. But the charge inflation pace was marginal overall, in spite of rebounding slightly in June. Even if goods prodders have registered the most solid growth in production since April 2014, the manufacturing PMI fell slightly since June.

This was mainly due to weaker growth in new business and employment. Furthermore, stocks of purchases dropped at a more rapid rate, whereas delivery times slowed at a slightly weaker pace, noted Markit.

In the meantime, business optimism at service providers eased since June as the index dropped to a nine-month low. Certain firms are concerned that a slowdown in economy might impact their activities in the coming 12 months.