German services PMI touches 15-month low in August, likely to expand in near term

German services sector dripped during the month of August, with the country’s flash Purchasing Managers’ Index (PMI) manufacturing index declining slightly to a three-month low. However, it is expected to recover soon and pick up pace in the near term.

Markit's flash composite Purchasing Managers' Index, which tracks the manufacturing and services activity that accounts for more than two-thirds of the German economy, edged down to 54.4 from 55.3 in July. This came in weaker than a Reuters consensus forecast for a reading of 55.0, but the headline figure was still comfortably above the 50 line that separates growth from contraction.

The PMI sub-index for manufacturing inched down to 53.6 as companies reported weaker growth in output and new orders while also hiring new staff at a slower rate.

The sub-index for services dropped to 53.3 which was the lowest level in 15 months. Service providers added fewer staff than in the previous months while their business expectations deteriorated to the lowest level in nearly two years.

There was a further gain in employment for the month and it remained above the long-term average, although it was the slowest rate of decline for 3 months. Input costs increased for the fourth successive month as raw material costs increased and there was also a an increase in output charges to a nine-month high.

Further, business expectations at service providers fell to the lowest level in close to two years, which will cause some concerns over the outlook given that interest rates are at record lows.

Meanwhile, the German economy grew by 0.4 percent in the second quarter, as higher exports, strong private consumption and increased state spending compensated for weaker investment in construction and machinery. For 2016 as a whole, the government expects the economy to expand by 1.7 percent, at par with last year which was the strongest growth rate in four years.