German factory growth climbs to six-year high in May

2 June 2017

German factories fired on all cylinders in May with output growing at the strongest pace in more than six years, a survey showed on Thursday, suggesting manufacturing will boost overall growth in Europe's biggest economy in the second quarter.

Markit's Purchasing Managers' Index (PMI) for manufacturing, which accounts for about a fifth of the German economy, jumped to 59.5 from 58.2 in April.

That was the highest level since April 2011 and put the index well above the 50 line that separates growth from contraction for the 30th consecutive month. The final figure came in slightly better than an earlier flash reading of 59.4.

Output, new orders and employment all improved at the fastest rates in around six years. Growth in new export business reached its highest level in seven years.

Manufacturers taking part in the survey pointed to strong demand from Asian customers, IHS Markit said, and domestic demand for industrial goods also remained solid.

IHS Markit economist Trevor Balchin said he expected German industrial output to rise 2.9 percent in 2017 as a whole, up from 1.0 percent growth in the previous month.

The survey also showed easing price pressures as input price inflation slowed for the first time since July 2016. Output price inflation eased for the third consecutive month.

German consumer inflation slowed more than expected in May to fall below the European Central Bank's 2 percent target, data showed on Tuesday, taking some pressure off the ECB to wind down its monetary stimulus in the near term.

The German economy grew by 1.9 percent in 2016, the strongest rate in half a decade, helped by soaring private consumption, higher state spending and increased construction.

In the first three months of 2017, the economy picked up further speed as exports helped to drive growth, pushing up Germany's quarterly growth rate to 0.6 percent from 0.4 percent in the fourth quarter of 2016.