Growth in German private sector slows in December

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Growth in German private sector slows in December

BERLIN Reuters -- Growth in German private sector activity evaporated in December due to restrictions to break an aggressive fourth wave of coronaviruses that hit the services sector in Europe's largest economy, a survey showed on Thursday.

The flash composite purchasing managers' index of IHS Markit fell to 50.0, an 18 month low, from 52.2 in November. This was weaker than a Reuters poll of analysts who had predicted a decline to 51.1 in December.

A reading of 50 indicates an unchanged level of activity, with any value above that signalling growth and any below pointing to a contraction.

In December, the German economic recovery stopped in its tracks due to the resurgence of the pandemic, as renewed restrictions and increased uncertainty dampened activity across the country's service sector, according to Markit economist Phil Smith.

The flash PMI for services activity dropped to 48.4, a 10 month low from 52.7 the previous month, suggesting a drop in sales among retailers in the crucial holiday season at the end of the year.

The industrial sector showed signs of improvement after supply bottlenecks for microchips and other intermediate goods hit factory output, especially among Germany's big carmakers.

The PMI for manufacturing went up to 57.9 from 57.4 in November.

Smith said that there was no disruption to supply chains from the emergence of the Omicron variant.

He cautioned that the situation could change quickly if more infections start to appear, especially in countries with a zero COVID approach, because the Omicron impact may not have filtered through yet.

The PMI survey data showed a decrease in input costs and output charges despite the multi-year highs seen in November when the EU-harmonized consumer price index hit 6% in Germany.

At the same time, business expectations brightened, buoyed by hopes that supply-chain problems and pandemic-related curbs on activity could fade over the next year, Markit said.

According to the Ifo economic institute, the German economy is expected to shrink by 0.5% quarter-on-quarter in the final three months of the year and to stagnate in the first three months of next year.

Germany is facing several winter months of stagflation or zero growth coupled with an unusually high inflation, due to the current surge in overall prices.