German Companies Fuel Growth by Burning Through Order Backlogs

German private-sector growth accelerated to the fastest pace this year as companies worked through their order backlogs.

A Purchasing Managers Index for the euro area’s largest economy rose to 54.7 in May from 53.6 in April, London-based Markit Economics said on Monday. Even so, new orders expanded at the slowest pace in 10 months.

“A first look at today’s survey results is encouraging, as output growth accelerated for the first time in 2016,” said Oliver Kolodseike, an economist at Markit. “However, we should not be too complacent about these numbers and should instead view them with some caution. There was evidence that some companies raised activity levels in order to process backlogged work, rather than as a result of rising new business.”

The German economy expanded 0.7 percent in the first quarter, the most in two years. With unemployment at a record low and prices stagnant, growth has been driven mostly by domestic demand.

German companies reported rising input prices for the first time in five months, mostly as a result of higher staff and fuel costs, Markit said. At the same time, selling prices remained largely unchanged as businesses tried to remain competitive.

A PMI for the services industry rose to 55.2 from 54.5, and a gauge for factories increased to 52.4 from 51.8, according to the report.

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