German business activity returns to growth after four months, PMI shows

By Maria Martinez

BERLIN, July 24 (Reuters) - Germany's private sector has returned to growth in July for the first time in four months, driven by a marked upturn in manufacturing output, a survey showed on Friday, although renewed conflict in the Middle East cast doubt over the sustainability of the upturn.

The Composite Flash Purchasing Managers' Index for Germany, compiled by S&P Global, rose to 51.2 in July from June's final reading of 49.5, above the 49.8 forecast by analysts polled by Reuters. 

The 50 mark separates growth from contraction.

"The German economy made a positive start to the third quarter, with the Composite PMI returning to growth territory after having signalled a three-month spell of contraction following the outbreak of war in the Middle East," said Phil Smith, economics associate director at S&P Global Market Intelligence.

However, given the escalating hostilities in the region, which have put renewed upward pressure on global energy prices, the path to a sustainable recovery still seems very much uncertain, Smith said.

MANUFACTURING DRIVES THE INCREASE

The flash manufacturing PMI rose to 52.2 from 50.3 the previous month, beating the consensus forecast for 50.5 in Reuters poll of analysts. 

"Manufacturing enjoyed a bumper month of production growth in July, recording its strongest rise in output in nearly four-and-a-half years," said Smith.

Meanwhile, services activity remained below the 50 threshold at 49.6, though it improved from 48.6 to a four-month high.

New business increased for the first time since February, helped by a renewed, if marginal, rise in services demand and faster manufacturing order growth. 

Employment fell again but at the slowest pace since December, while business confidence improved to a five-month high. 

Input cost inflation picked up from June's four-month low, driven by services firms and partly due to the expiry of the government's temporary tax reduction on fuel.

"With oil prices on the rise again, it looks like we could be set for a period of renewed inflationary pressures," Smith said. 

(Reporting by Maria Martinez; Editing by Hugh Lawson)