BERLIN (Reuters) - Germany's business expansion lost steam in March, with slower growth in services offsetting a contraction in manufacturing, a survey showed on Thursday, suggesting Europe's largest economy will post meagre growth this quarter.
Markit's flash composite Purchasing Managers' Index (PMI) measuring growth in both manufacturing and services, which together account for more than two-thirds of the German economy, fell to 51.0 from 53.3 in February.
That was above the 50 mark that separates growth from contraction for the fourth month running, although only marginally, and was the fastest drop since June 2011. New orders fell for the first time this year, with firms citing weaker demand in southern Europe.
"Germany looks set for a return to growth over the first quarter of 2013, but there are risks that the recovery will have subsided appreciably by the time GDP data arrives to herald an upturn at the start of the year," said Tim Moore, Senior Economist at Markit.
"Moreover, the loss of output growth momentum over the month in March was the greatest since the PMI surveys flagged up a rapid slowdown around the middle of 2011."
The preliminary data showed the manufacturing sector shrank after expanding last month for the first time in a year, with the sector index slipping to 48.9 from 50.3, undercutting a forecast for a small rise to 50.5.
New export orders and backlogs of work shrank, according to sub-indices for the sector.
"The key area of weakness remains other euro countries, notably southern European states where austerity continues to hit demand," said Markit economist Chris Williamson. "Germany is seeing a stronger performance in terms of exports outside the euro area, notably to Asia and the United States."
Manufacturing contributes around 21 percent of Germany's gross domestic product, according to World Bank figures.
Europe's economic powerhouse expanded robustly during the first two years of the euro zone crisis but growth slowed last year and the economy shrank 0.6 percent in the fourth quarter.
Most economists still see the country escaping a recession, defined as two consecutive quarters of contraction, by growing weakly in the first quarter before regaining momentum. Markit's Williamson said he expected 0.3 percent growth.
Recent forward-looking sentiment indicators have shown German companies, investors and consumers becoming more optimistic.
But the "hard" data of backward-looking statistics on production, sales and jobs has been mixed, in a sign the economy will not rebound as strongly as the sentiment measures suggest.
"Much depends on what happens with the euro zone crisis because if things continue to deteriorate due to the situation of Cyprus, so much of Germany's trade is intra euro zone that that is going to have a dampening effect," Williamson said.
Weakness in the manufacturing sector would likely feed through to services, he said.
The PMI survey showed the services sector expanded far less than last month, dashing expectations for it to pick up pace. The sub-index tracking the sector dropped to 51.6 from 54.7 in February, falling far short of the Reuters consensus forecast for a rise to 55.0.
Positive news for the private sector as a whole came from the labour market, with unemployment expanding in both manufacturing and services, and increasing overall at the fastest pace since January 2012.
- Detailed PMI data are only available under licence from Markit and customers need to apply to Markit for a licence.
To subscribe to the full data, click on the link below: http://www/markit.com/information/register/reuters-pmi-subscriptions
For further information, please phone Markit on +44 20 7260 2454 or email email@example.com
(Reporting By Sarah Marsh, editing by Gareth Jones and Hugh Lawson)