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German PMI Signals Economy Withstanding Increased Risks

Aug. 21 (Bloomberg) -- German services and manufacturing activity slowed less than analysts forecast in August, signaling that Europe’s largest economy can withstand risks from tensions with Russia to stagnation in the euro area.

The preliminary reading of a Purchasing Managers Index for the two industries fell to 54.9 from 55.7 in July, London-based Markit Economics said today. Economists surveyed by Bloomberg News predicted a drop to 54.6. A reading above 50 indicates expansion.

German gross domestic product contracted for the first time in more than a year in the second quarter, prompting the Bundesbank to warn that a previously anticipated rebound in the second half is now in doubt. While escalating sanctions against Russia over its support for Ukraine separatists have hurt the outlook for a euro-area economy that failed to grow in the three months through June, Markit said Germany’s fundamentals remain solid.

“The PMI data available for the third quarter so far point to a swift recovery in GDP from the ground lost during the second quarter,” said Oliver Kolodseike, an economist at Markit. “However, the concern is the divergent trends within the economy,” with services “taking up some of the weakness in manufacturing,” he said.

A factory gauge fell to 52 in August from 52.4, while an index of activity in the services industry declined to 56.4 from 56.7 in July, according to today’s report.

French Data

French manufacturing activity contracted for a fourth month in August, while a measure of services growth rose to a five-month high, Markit said today. A euro-area measure for both industries probably weakened to 53.4 from 53.8, according to a separate Bloomberg News survey. That report is due at 10 a.m. Brussels time.

The German economy shrank by 0.2 percent in the three months through June after a warm winter shifted production to earlier months. The outlook is now clouded by “unfavorable international news,” according to the Bundesbank.

In June, the Frankfurt-based central bank predicted growth of 1.9 percent this year and 2 percent in 2015. That compares with forecasts by the European Central Bank for euro-area expansions of 1 percent and 1.7 percent, respectively. The ECB will publish updated projections for the currency bloc in September, while new Bundesbank estimates for Germany are due in December.

To contact the reporter on this story: Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net

To contact the editors responsible for this story: Fergal O’Brien at fobrien@bloomberg.net Jana Randow, Paul Gordon

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