BERLIN (Reuters) - Germany's private sector expanded in August at its fastest rate since January, a survey showed on Thursday, in a sign Europe's largest economy is back on track after a contraction late last year and a subdued start to 2013.
Markit's preliminary composite Purchasing Managers' Index (PMI), which measures growth in both the manufacturing and services sector and covers more than two-thirds of the economy, rose to 53.4 in August from 52.1 in July.
That was comfortably above the 50 threshold that separates growth from contraction and was helped by a surge in new work.
"It's an increasingly buoyant-looking picture, with manufacturing seeing its best performance for a couple of years, and alongside that there's an improving service sector, so exporters are doing well and the domestic economy is healing," said Chris Williamson, chief economist at Markit.
"I would expect to see some job growth come through in the coming months which should further cement the picture of a sustainable looking upturn," he added.
He said the PMI survey pointed to economic growth of around 0.4 percent in the third quarter, a slight slowdown after the bumper growth of 0.7 percent in the April-June quarter driven by strong domestic demand and weather-related catch-up effects.
The positive PMI reading chimed with recent data which has pointed to an upturn in Europe's powerhouse economy, including rising industrial orders, output and exports, falling unemployment and sentiment improving overall.
A sub-index from Markit showed the manufacturing sector expanding at its fastest rate in more than two years in August as output was above the 50 threshold for a fourth straight month. Backlogs of work also increased.
Factories continued to shed jobs but Williamson said this was a reflection of Germany's need to be competitive as Japan and the United Kingdom benefit from their weakened currencies rather than a cause for concern about the economic outlook.
Manufacturing firms benefited from a surge in new orders, which increased at their sharpest rate since May 2011. New contracts from abroad, which have suffered from weaker euro zone demand and a slowdown in Asia in recent months, shot up for the first time since February.
Manufacturers also got a boost from bigger margins thanks to rising factory gate prices and falling input prices. Service providers, on the other hand, suffered a squeeze on their margins as their costs rose more sharply than output prices.
A sub-index tracking the service sector showed business activity increasing at its fastest pace since February as new orders rose, albeit at a slower pace than in July.
Service providers' business expectations were in positive territory for the ninth month in a row, boding well for future business activity, and firms hired new staff for the second straight month.
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Reporting by Michelle Martin; Editing by Hugh Lawson