German Economy Strengthens as Industry Survey Beats Estimate

German manufacturing and services strengthened more than economists forecast this month, adding to signs that the euro area’s largest economy is underpinning the region’s recovery.

A factory index based on a survey of purchasing managers rose to 54.2 from 53.7 in March, Markit Economics said in London today. Economists had forecast 53.8, based on the median of 27 estimates in a Bloomberg News survey. A reading above 50 indicates expansion. A separate services gauge jumped to 55 from 53, also exceeding forecasts.

The Bundesbank has said Germany’s economy probably strengthened at the start of the year and European Central Bank President Mario Draghi predicts an “ongoing recovery” for the 18-nation currency bloc. At the same time, the crisis in Ukraine and low inflation pose risks, with Markit’s surveys showing price pressures eased this month.

The Purchasing Managers’ Index indicates that the economy “is set to build on the foundation of last quarter’s solid growth,” said Oliver Kolodseike, an economist at Markit. “Price data meanwhile point to an increasing risk of deflationary pressures in the euro zone’s largest economy.”

The euro rose after the indexes were released and traded at $1.3815 at 9:42 a.m. in Frankfurt, up 0.1 percent today.

Composite Index

A composite index of both manufacturing and services in Germany rose to 56.3 in April from 54.3 in March, Markit said. According to that survey, input costs were unchanged in April, ending a nine-month period of rising prices. Costs at service companies increased the slowest in 44 months, while manufacturers saw input prices fall the most since July.

Separately, a French composite measure of both services and manufacturing declined to 50.5 in April from 51.8 in March. The report also showed that service providers and manufacturers both cut selling prices at faster rates this month.

Euro-area inflation slowed to 0.5 percent in March from 0.7 percent in April. That compares with an ECB target of below but close to 2 percent.

The European Union’s statistics office is due to publish inflation for this month on April 30 and the ECB will hold its next monetary-policy meeting on May 8. The central bank has kept its benchmark rate at a record-low 0.25 percent since November.

Speaking in Washington this month, Draghi said that policy makers are “resolute” in their determination to keep monetary policy loose and unanimous in their commitment to use unconventional instruments within the ECB’s mandate if needed.

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