Strong domestic demand propels growth in Germany's services sector: PMI

Strong domestic demand propels growth in Germany's services sector: PMI
FILE PHOTO: A general view shows the restaurant of hotel castle Elmau in Kruen near the southern Bavarian resort of Garmisch-Partenkirchen March 25, 2014. REUTERS/Michaela Rehle/File Photo -
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BERLIN, (Reuters) – Activity in Germany’s services sector was the strongest in nine months in June, a survey showed, another indication that domestic demand will continue driving growth in Europe’s biggest economy as exports fall.

IHS Markit’s final services Purchasing Managers’ Index (PMI) rose to 55.8 from 55.4 in May. The figure, published on Wednesday, was higher than a flash reading of 55.6 and was well above the 50.0 mark that separates growth from contraction.

Strong domestic demand prompted a steeper rise in new business than in May, sustaining a robust — albeit slightly weaker — rate of job creation in the sector, the survey showed.

But business expectations among services providers weakened to their lowest level since October 2015, reflecting growing concerns that the sharp slowdown in the manufacturing sector could spread to the rest of the economy.

“The survey’s forward-looking indicator — the only one based on sentiment — raises questions marks over how long the service sector can continue growing at such a pace and keep compensating for the weakness in manufacturing,” said Phil Smith, principal economist at IHS Markit.

“Slowdown fears have weighed on service sector optimism.”

A sister survey published on Monday showed that activity in the export-dependent manufacturing sector contracted in June for the sixth month in a row, as weaker demand weighed on new orders and led to a fall in employment.

A composite PMI covering both sectors came in at 52.6 in June, unchanged from both the May and flash readings.

In its 10th year of growth, the German economy is expected to expand by a modest 0.5% this year, according to government projections.

The slowdown has started to leave its mark on an otherwise solid labour market that has been providing impetus to a consumption-driven growth cycle.

The economy has been relying on the domestic market for growth as exports weaken. Low interest rates and generous pay hikes have helped boost consumption.

“Overall employment in Germany is now in a lower growth phase, with the service sector providing the bulk of new jobs,” Smith said.

(Reporting by Joseph Nasr; Editing by Catherine Evans)

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