German Manufacturing Output Surprisingly Contracted in March

German manufacturing output surprisingly contracted in March.

A German index based on a survey of purchasing managers in the manufacturing industry declined to 48.9 this month from 50.3 in February, while a services gauge fell to 51.6 from 54.7, London-based Markit Economics said in an e-mailed report today. A reading below 50 indicates contraction. Economists had forecast a reading of 50.5 for the manufacturing index and 55.0 for the services gauge, according to the median estimates in Bloomberg News surveys.

The Bundesbank predicts the German economy will expand in the current quarter after contracting 0.6 percent in the final three months of last year. Still, political turmoil in Italy and the specter of a bank run in Cyprus are spooking financial markets and threatening to derail an economic recovery in the euro area, Germany’s biggest export market.

“Germany looks set for a return to growth over the first quarter of 2013, but there are risks that the recovery will have subsided appreciably by the time GDP data arrives to herald an upturn at the start of the year,” Tim Moore, senior economist at Markit, said in the report. “Moreover, the loss of output growth momentum over the month in March was the greatest since the PMI surveys flagged up a rapid slowdown around the middle of 2011.”