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German factory growth hits 15-month low in May, PMI shows

German factory growth hits 15-month low in May, PMI shows
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BERLIN, June 1 (Reuters) – - German manufacturing grew at the slowest pace in 15 months in May, a survey showed on Friday, as capacity constraints prompted supply delays and a global trade slowdown clouded expectations.

Markit’s Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of the German economy, fell to 56.9 from 58.1 in April. That nearly matched a flash reading of 56.8 and was well above the 50 line that separates growth from contraction.

The fifth consecutive monthly decline after a record high reading in December still indicated a robust rate of expansion.

But business confidence deteriorated as expectations for future output fell to the lowest level for more than two and a half years.

Phil Smith, principal economist at IHS Markit, said the drop was compounded by the timing of public holidays, which caused a loss of working days. Rising oil prices and lingering capacity constraints added further pressure.

“Capacity constraints have been a big part of the slowdown seen so far in 2018, and May’s survey continued to highlight widespread delays in supply chains and found evidence of this resulting in lost sales,” Smith said.

“A slowdown in global trade flows has added to the equation, with a sharp deterioration of export order growth to a two-year low the most worrying development to come out of the latest figures.”

Markit said a slower increase in production was coupled with weaker new order growth, which was solid by historical standards but the weakest in 21 months.

Smith added: “In terms of prospects in the year ahead, manufacturers have significantly downgraded their expectations, with such modest growth forecasts not seen since late-2015.”

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(Writing by Joseph Nasr, edting by Larry King; Joseph.Nasr@thomsonreuters.com; +49 172 678 5836; Reuters Messaging: joseph.nasr.thomsonreuters.com@reuters.net)

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