German Growth Upswing to Continue

Germany’s services enjoyed vibrant activity in August, pushing up price pressures in the sector and boosting overall private sector growth, a survey showed on Tuesday, suggesting that a solid upswing in Europe’s biggest economy is set to continue.

Markit’s final composite purchasing managers’ index, which tracks the manufacturing and services sectors that account for more than two-thirds of the economy, rose to 55.8 from its ten-month low of 54.7 in July, Reuters reported.

The reading was well above the 50 line that separates growth from contraction and came in slightly better than a preliminary estimate of 55.7 which was published last month.

The main support came from manufacturing where growth accelerated at the fastest pace since April, propelled by a sharp rise in output, new orders and export business.

In the services sector, business activity increased to reach a two-month high of 53.5 in August, with orders coming in at a faster pace. Service providers continued to hire new staff, though job creation slowed to reach its slowest pace in more than a year.

In a sign that the upswing is pushing up inflation, cost pressures faced by German service providers increased. The rate of input price inflation picked up to reach a five-month high while prices charged by service providers accelerated at the fastest pace since March.

IHS Markit economist Trevor Balchin said that the survey data underlined the German economy’s continued strength. IHS Markit had therefore raised its growth forecasts for 2017 and 2018 to 2.3% and 2.1% respectively.

The government predicts calendar-adjusted growth of 1.9% for 2017. That would be on a par with last year’s performance, which was the strongest among the G7 group of the world’s most industrialized countries.

German exporters said they were not concerned about the strength of the euro, which last week reached its highest in more than two years against the dollar, saying other factors such as quality and service were also crucial for Germany’s export success.

The euro is up more than 13% against the dollar this year and is the best-performing currency among the G10.

“We’re totally relaxed about the euro’s current strength,” Anton Boerner, president of the BGA trade and wholesale association, told Reuters in comments released on Monday. “Neither the speed nor the extent worry us.”

Boerner said the German economy was coping with the euro’s strength, but Germany’s neighbors with less competitive economies would be more likely to face problems.