German private sector contracts for first time since November: PMI

BERLIN (Reuters) - Germany's private sector shrank for the first time in five months in April, a survey showed on Tuesday, suggesting Europe's largest economy may contract again after an expected recovery in the first 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 48.8 in April from 50.6 the previous month.

It was the index's first fall back below the 50 mark that separates growth from contraction since November and was the weakest reading since October. Markit chief economist Chris Williamson said the survey marked the start of a downward trend.

"Whereas we'd seen evidence that the economy had bounced back quite nicely in the first quarter after the surprisingly strong downturn at the end of last year, there are suggestions that we could see a renewed downturn in the second quarter," he said.

Europe's economic powerhouse shrank by 0.6 percent in late 2012 as trade slowed and firms postponed investments due to the euro zone crisis. But economists polled by Reuters expect it to escape a recession and grow by 0.3 percent in the first three months of this year and by 0.4 percent in the second quarter.

Williamson said PMI surveys this year suggested the economy had expanded by 0.3 percent in the first three months of this year but April's flash reading pointed to at least a 0.1 percent contraction in the second quarter.

"There are certainly downside risks to that because when you look at the rate of new orders index across both sectors, down to 46.0 from 48.3 in March, that's a harbinger of further pressure on output in May and June, so the rate of decline of output could very easily worsen," he said.

A sub-index tracking the manufacturing sector contracted at its fastest rate since December as output fell after a three-month run of expansion, new orders shrivelled up, contracts from abroad declined and backlogs of work fell. The manufacturing PMI fell to 47.9 in April from 49.0 in March.

Faced with thin order books, factories fired workers after taking on more employees last month for the first time since September.

The only welcome news for manufacturers was that input prices fell more sharply than output prices, alleviating pressure on their operating margins.

The latest data have shown industrial orders and output rising, but the finance ministry said on Monday that while the economy had stabilised in the first three months of this year, industry had not yet overcome a weak phase.

Germany's services sector also fared badly, with an index on activity in the sector falling to 49.2, its weakest level since October, from 50.9 in March as firms lacked new orders and resorted to working through backlogs of work, which therefore also declined.

Germany's Bundesbank has said the services sector, which expanded for the first three months of this year, probably pushed the German economy back into expansion territory between January and March.

Service providers' operating margins were also squeezed as input prices rose while output prices fell, but firms nonetheless took on more new employees.

Companies in the services sector remained optimistic overall about their future prospects but the sub-index measuring business expectations slumped to 53.7 from 58.8 in March as companies became more worried about the euro zone debt crisis and their customers cancelled projects.

(Reporting by Michelle Martin; Editing by Hugh Lawson)