MNI 5 THINGS: Aug PMIs Show Stronger German Business Activity

-- German business activity expands at fastest rate since February

By Jaspreet Sehmi

     LONDON (MNI) - Flash PMI survey data released this morning shows that

German private sector business activity grew at the fastest pace in six months

in August, with the composite PMI index rising to 55.7 (from 55.0 in July). The

constituent manufacturing and services indices moved in line with analyst

expectations in directional terms, but the magnitudes of the moves were greater

than had been pencilled in. 

     While the manufacturing PMI decelerated to 56.1 (from 56.9 in July), this

impact was more than offset by the services PMI accelerating to 55.2 (from 54.1

in July), driving the gain in the composite index.

     Below, we highlight five key points following the release:

     PMI Indices Remain At Robust Levels: While clearly having moderated from

the recent highs registered around the turn of the year, Germany's PMI indices

remain firmly in positive territory, with all three hovering very close to their

three-year averages. This is consistent with still-solid private sector activity

growth in the Eurozone's largest economy.

     Inflationary Pressures Rise Further In August: The inflation components of

the PMI data continued to march ahead in August. Indeed, average prices charged

for goods and services rose at one of the fastest rates ever recorded by the

survey, as businesses are passing on part of the burden of higher input costs to

consumers. Input costs are rising on the back of increased salary pressures and

higher raw material prices. While base effects should see an easing in input

price inflation over the coming months, the data nonetheless provides strong

anecdotal evidence of gradually building inflationary pressures, which should

feed into the headline CPI data over the coming quarters, as these developments

trickle through supply chains.

     Details Show Broad-Based Strength: The August survey showed broad-based

strength across sectors and components. Indeed, across both the manufacturing

and service sectors, output, new orders and employment continued to expand at

healthy paces. Moreover, confidence amongst private sector businesses over the

outlook for activity during the next twelve months rose to its highest level in

four months, suggesting that -- bar any shocks -- the headline PMI indices

should remain in robust territory over the coming quarters.

     PMI Data Suggest Quarterly GDP Growth To Remain Close 0.5% In Q3: As we

pointed out in our preview of the August German PMI data, the quarterly average

composite PMI index appears to be a relatively good coincident indicator of

quarterly German GDP growth. Estimating the average composite PMI index reading

for Q3 based on the July and August outturns points to a quarterly GDP growth

rate of around 0.5% in Q3, following on from 0.4% and 0.5% in Q1 and Q2

respectively.

     ECB Policymakers Will Take Heart From German PMI Data: All in all, as ECB

policymakers soon return from their summer breaks to assess the state of play,

the August PMI data will give them more confidence in pressing ahead with

monetary policy normalisation from October. Indeed, the central bank's plans to

phase out its bond-buying programme by year-end, before kicking off a

rate-hiking cycle sometime in the latter half of 2019, look to be firmly on

track.

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