German Economy at Risk of Downturn as Growth Seen Weak at Best

German private-sector growth slowed to the weakest in 18 months in December, increasing the risk that a soft phase will turn into a more pronounced economic downturn.

Markit Economics said a Purchasing Managers Index for manufacturing and services fell to 51.4 this month from 51.7 in November. Economists forecast an increase to 52.3. A factory gauge rose to 51.2 from 49.5, crossing the 50 mark that divides expansion from contraction, while a measure for services fell to 51.4 from 52.1.

While German data showed this month that the economy, Europe’s largest, had a modest start into the last quarter of the year, the Bundesbank has pointed to signs that growth could strengthen. As the rest of the euro area struggles to expand and inflation hovers close to zero, the European Central Bank has held out the prospect of expanding its range of asset-purchases next year.

The German “data are consistent with only marginal gross-domestic-product growth in the fourth quarter at best,” said Oliver Kolodseike, an economist at London-based Markit. “The possibility of a renewed downturn at the start of next year is clearly becoming more and more likely, especially if the survey data continue to disappoint.”

The German economy narrowly escaped recession in the third quarter, recording growth of 0.1 percent after shrinking by the same extent in the April-June period. Economists predict growth of 0.2 percent in the final three months of the year.

Increased Competition

Companies signaled a second consecutive monthly decline in new business in December, citing a lack of investment and increased competition, according to today’s report.

In France, the manufacturing PMI unexpectedly declined to 47.9 from 48.4. Economists predicted an increase to 48.6. A gauge for services and manufacturing activity in the 18-nation euro area is seen increasing to 51.5 this month from 51.1, according to a separate survey. That data is due at 10 a.m. Frankfurt time.

A second round of targeted long-term loans to banks by the ECB last week came in at the low end of analysts’ forecasts, in a sign that financial institutions see few ways of using cheap central-bank money in the weak economy. ECB President Mario Draghi said on Dec. 4 that “all assets but gold” are under consideration for purchase as the central bank seeks to step up aid to the economy.

The Bundesbank said yesterday that some support for German consumers will come from lower oil prices, a development Weidmann has likened to a “mini stimulus package.”

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