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Strong German services point to robust growth in third quarter - PMI

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Strong German services point to robust growth in third quarter - PMI
FILE PHOTO: A waitress serves hamburgers at "Route 66 Diner", which offers American diner food, in Berlin, Germany, August 15, 2018. REUTERS/Fabrizio Bensch/File Photo   -   Copyright  Fabrizio Bensch(Reuters)
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BERLIN, (Reuters) – German services growth reached a six-month high in August as firms created jobs at the fastest pace in nearly 11 years, a survey showed on Wednesday, suggesting that a domestically driven upswing will continue in the third quarter.

IHS Markit’s final composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services sectors that account for more than two-thirds of the economy, rose to 55.6 from 55.0 in July.

The reading, the highest since February, was well above the 50 line that separates growth from contraction and came in slightly below a preliminary estimate published last month.

In the services sector, business activity increased to reach a six-month high at 55.0 in August, with financial and telecommunications firms reporting the fastest growth rates.

A sub-index tracking employment growth in services jumped to 56.8 which was the highest reading since October 2007.

IHS Markit economist Phil Smith said the survey data pointed to a quarterly growth rate of around 0.5 percent in the third quarter, on a par with the expansion in the April-June period.

“Service providers’ increased appetite for new hires reflected not only rising workloads and increased pressure on capacity, but also a strong belief that growth is set to continue in the year ahead,” Smith said.

Helped by low borrowing costs and a growing population, household consumption, state spending and construction have become important and reliable growth drivers in Europe’s largest economy, providing a buffer against trade-related uncertainties.

The increasingly tight jobs market is adding to wage pressures in services as input prices rose at the fastest rate since early-2011 driven by higher labour and transport costs, the survey showed.

“Thankfully for businesses, the strength of domestic demand means that they have been able to pass higher costs back onto clients,” Smith added.

This suggests that core inflation in Germany is likely to pick up in the coming months while the headline figure is seen edging down due to cheaper energy prices.

(Reporting by Michael Nienaber, Editing by Catherine Evans)

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