Service firms drive strong growth in German private sector

BERLIN (Reuters) - Stronger-than-expected growth among service providers drove a faster expansion in Germany's private sector in February, a survey showed, in a sign Europe's largest economy is gaining momentum and continues to drive a regional recovery.

Markit's preliminary composite Purchasing Managers' Index (PMI), which tracks activity in the manufacturing and services sectors and covers more than two-thirds of the economy, rose to 56.1 in February, up from January's 55.5.

The reading was above the 50 mark denoting growth for the tenth straight month and the highest since June 2011.

"Germany is positively surging," said Chris Williamson at Markit. "The PMI is consistent with growth of 0.7 percent in the first quarter and we could see that exceeded if the rate of expansion continues to accelerate further."

New orders across the private sector piled up at the fastest pace in three months. Markit said anecdotal evidence suggested rising work inflows were due to greater demand from both domestic and foreign markets, and unusually mild weather.

While Germany was a growth engine in the early years of the euro zone crisis, its performance tailed off over the last two years and it only managed an expansion of 0.4 percent in 2013.

Economists are forecasting growth will accelerate this year. The government has forecast expansion of 1.8 percent.

Markit's Williamson said this was a cautious estimate.

"These numbers could prompt economists to ratchet up their forecasts further. You could see growth reach 3 percent if the PMI continues to rise with the wider region improving."

A subindex for business activity in the services sector rose to 55.4 from 53.1 in January, beating the consensus forecast in a Reuters poll for 53.4 and even the highest estimate for 54.0.

Employment in the services sector grew at the fastest rate in slightly more than two years, while companies' business expectations were at the highest level in nearly three years.

The subindex for the manufacturing sector eased to 54.7 from 56.5 in January, undershooting the consensus forecast in a Reuters poll for 56.3. But Markit's Williamson said this was no cause for concern, as the expansion was still one of the steepest since early 2011.

Williamson said 2014 looked set to be a year of stronger global growth which would benefit Germany's export-oriented manufacturers.

"German exports are certainly winning their share of the cake as demand improves, which should also benefit its neighbors," he said, noting that German exporters would pass on orders to supply chains in neighboring countries.

Markit's February survey of German manufacturers shows new export orders rising at the second-sharpest rate in almost three years, with the United States, Asia, the Middle East, Poland and Russia mentioned as sources of growth.

Recent backward-looking hard data for Germany has been subdued, with exports, industrial output and orders all falling in December.

But sentiment indicators have mostly painted a rosy picture of the economy, with consumers feeling their most upbeat in more than six years and business morale rising.

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(Reporting By Sarah Marsh; Editing by Toby Chopra)