German manufacturing expanded for a sixth consecutive month in February, a survey showed on Monday, although export growth slowed slightly as the strong euro took the shine off orders. The BME/ monthly Purchasing Managers Index rose to 53.4 after remaining steady at 53.0 in January and December. NTC Research, which compiles the data, said an acceleration in the headline manufacturing activity index was driven by "significant growth" in output and new orders. However, the pace of expansion in foreign orders slowed, with some firms reporting the euro's rise had hindered new business, and as in previous months, companies said they had no plans to hire new staff. NTC's chief economist Chris Williamson said sustained growth could be undermined if the euro, which hit a high of more than $1.29 on February 18, remains strong in the months ahead.
"I think if we see the euro remaining this strong, the signs of this survey are that that will continue to restrict growth," he said, adding the European Central Bank should take heed. "I think the PMI surveys would bolster the argument that rates need to be watched very closely with regard to the exchange rate. It will strengthen arguments that a rate cut should perhaps be on the cards in the coming months," he said. So far the strong euro has not led to a significant drop in orders in Europe's biggest economy. "Orders books in Germany, although easing in February, are now growing at a faster rate than in any other country in the euro area and in the U.K," said Williamson. Although the new orders index fell to 56.0 from 56.6 in February, it remains near December's three-year high and well above the 50 threshold separating expansion from contraction.
FIRMS STILL NERVOUS ABOUT FUTURE
Despite this, Williamson said firms were still concerned about the sustainability of growth and failing to keep up with demand for goods or create as many jobs as they could. "This basically reflects a lack of capacity at suppliers but also a reluctance of suppliers to extend capacity to meet this demand," he said. "This is reflected by the unemployment data more than anything else. The supply of intermediate goods and raw materials are not expanding employment capacity." His words were echoed by Ulrich Schumacher, the head of German chipmaker Infineon , who told Handelsblatt newspaper on Friday that the firm could not meet demand, which is currently outstripping supply by 10 percent. "The sales crisis has turned seamlessly into a supply crisis," Schumacher, the chief executive of Europe's second-biggest chipmaker was quoted as saying. "The fact that many companies did not invest against the trend during the lean years is now coming back to bite them," he added. Delivery times slipped to 44.9 in February from 46.7, the component's eighth consecutive month of contraction. But Williamson said the drop in German business confidence reported last week when the influential Ifo economic research institute' headline index dipped in February for the first time in 10 months, did not indicate growth was under threat. "It's certainly not consistent with a sharp deterioration in growth at all, but more of a fairly steady robust pace of growth," said Williamson. The PMI survey also showed the work backlog index hitting a record high of 56.8 from 54.6 in January. Williamson said this could fuel a job market recovery, long seen by analysts as the chief hindrance to increased domestic demand in Germany. "That's a good indication firms are really going to have to think about increasing their employment to boost capacity," he said. "So if we see order books continuing to expand at a similar rate to what we're seeing at the moment...I would expect to see employment begin to increase before the summer."///