German factory growth at three-year high
GERMAN manufacturing growth reached its highest level in almost three years in December, driven by rising demand from Asia and the US, a survey showed yesterday, suggesting the sector would contribute to an expansion in the fourth quarter.
Markit’s Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of the economy, rose to 55.6 from 54.3 in November to reach its highest level in 35 months.
That was slightly above a flash reading and well above the 50 line that separates growth from contraction.
“Strong growth in December meant that goods producers enjoyed their best quarter in nearly three years during Q4,” Markit economist Philip Leake said.
“The manufacturing sector is therefore likely to help overall GDP growth accelerate from the modest 0.2% pace seen in the third quarter.”
He said that companies reported solid improvement in domestic demand as well as new business wins in Asia, Europe and the US.
“There were also encouraging signs for further growth in 2017. Companies look set to hire in an effort to raise operating capacity, following the sharpest increase in backlogs of work since early-2014,” Leake said.
Expansions of output and new orders underpinned the overall improvement in conditions, Markit said, noting that new business increased for the 25th consecutive month with the rate of growth just below the record over that period.
Responding to the rising demand, manufacturers raised their output at a quicker pace. The rise in production was the highest since July, it said.
Inflationary pressures also increased in December. Input costs rose at the fastest pace since June 2011. The weaker euro helped Markit said.
The survey was another positive sign after Ifo’s closely-watched business climate index showed last month that morale among executives rose in December to its highest level since February 2014.
The economy grew 0.7% in the first quarter and 0.4 in the second. For the year, economic institutes predict a growth rate of 1.9%, mainly driven by soaring private consumption and higher state spending on migrants.
Spanish factory activity also expanded at the fastest pace in 11 months in December driven by strong orders and increasing output, a survey showed yest adding to expectations of more economic growth in the last quarter.
Markit’s PMI of manufacturers rose to 55.3 in December from 54.5 in November. The index has held above the 50 line to drive up import costs, separating growth from contraction every month since November 2013.
“The Spanish manufacturing PMI signalled that the sector ended 2016 on a high, with growth back at the levels seen at the start of the year. The picture is much more positive than in the summer when output and new orders stagnated,” Markit senior economist Andrew Harker said.
New factory orders expanded at their fastest pace since the beginning of the year in December, rising to 57.1 from 55.4 a month earlier.
The government has said it expects the economy to expand by up to 0.8%, quarter on quarter, in the October to December period.
Dutch manufacturing had its best month in more than five years in December, with both output and orders climbing, along with staffing numbers and inflationary pressure.
The seasonally adjusted NEVI/DPA Purchasing Managers’ Index rose to 57.3 from 57.0 a month earlier, which pointed to a “marked” improvement in the health of Dutch manufacturing, index compiler Markit said yesterday.
“Encouraged by strong demand conditions, firms increased their staff numbers in December so as to enhance their operating capacity,” Markit said.
“In spite of this, backlogs of unfinished work accumulated for the second successive month.”
The strong data is generally in line with several upgrades to the outlook for the Dutch economy in recent months, including by the International Monetary Fund and the government’s budgetary forecasting office.
Markit noted input costs were rising in part due to the weaker euro against the US dollar, which led manufacturers to raise selling prices. — Reuters