German factory growth surges in September -PMI

German manufacturing growth expanded at the fastest pace in almost 6-1/2 years in September, driven by new orders mainly from Asia, a survey showed on Monday.

That suggests the sector, which accounts for about a fifth of the German economy, will contribute to an expansion in the third quarter.

Markit’s Purchasing Managers’ Index (PMI) for manufacturing rose to 60.6 from 59.3 in August to reach its highest level since April 2011.

That was on a par with a flash reading and well above the 50 line that separates growth from contraction.

“Germany’s manufacturers ended the third quarter on a particularly high note,” said Markit economist Phil Smith.

“The PMI rose for the second month running to put it in territory unseen since the temporary rebound that followed the global financial crisis”.

Strong demand at the end of the third quarter fueled the fastest growth in orders since June and prompted manufacturers to hire new staff at a rate not seen since May 2011.

“The current phase of expansion is now approaching its third year, but there are increasing signs of pressures building in supply chains,” said Smith. “Delivery times on inputs showed the greatest increase since early 2011, leading goods producers to take action and augment safety stocks.”

Despite taking on more workers, manufacturers saw pressure build up on operating capacity: backlogs rose at the fastest in more than seven years.

Booming orders also drove up input prices, including for chemicals and metals, especially as manufacturers sought to stack up on raw materials. This pushed up cost inflation to a five-month high.

Markit said confidence about the future among German manufacturers rebounded to a three-month high.

Germany’s leading economic institutes last month raised their joint forecast for Europe’s biggest economy to grow by 1.9 percent this year and 2.0 percent in 2018, both unadjusted for calendar effects.

The German economy grew by 0.7 percent on the quarter between January and March and by 0.6 percent in the second quarter, driven by household and state spending as consumers and authorities reap the benefits of record-low borrowing costs and a low unemployment rate.
Source: Reuters (Reporting by Joseph Nasr; Editing by Catherine Evans)

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