Growth in Germany’s business activity slackens in March

Growth in German business activity slackened in March on the surprising contraction of its manufacturing sector - the heart of its dominant export industry.

The figures would give rise to doubts about whether the German economy could continue to grow even with the neighbouring euro-zone countries severely hit by the bloc's fiscal crisis.

Activity across the German manufacturing and services sectors increased in March, though at a slower rate than in February, according to data provider Markit.

The composite purchasing managers' index was down to 51.0 from 53.3, according to the company's preliminary figures. A reading over the 50 threshold indicated month-to-month growth.

However, activity in the manufacturing sector undershot the threshold, with a reading of 48.9, while growth in the services industry was sharply down to a reading of 51.6 from 54.7.

According to Markit economist Tim Moore, Germany looked set for a return to growth over the first quarter of 2013, but there were risks that the recovery would have subsided appreciably in subsequent months.

The German economy, though is expected to regain traction later in 2013 even with a subdued start to the year which had included data showing the industrial sector performing poorly, the finance ministry said today.

Europe's largest economy declined 0.6 per cent in the fourth quarter and while recent forward-looking sentiment indicators pointed to a slight improvement  in the first quarter, hard back up data was not available.

"The rise in most sentiment indicators for several months indicates that overall economic activity will gather momentum over the course of this year," the ministry said in its monthly report.

"However, the 'hard' industrial data show that at the beginning of the first quarter of 2013 German industry has not yet overcome its weak phase despite showing signs of stabilising," it added.

According to the latest data industrial output continued to stagnate in January amid declining orders for the coming months. Other data had a more positive edge, with retail sales rising sharply, unemployment falling and exports increasing.

Most economists expect Germany to log a moderate growth in the first three months of this year and thereby avoid the second quarter of contraction that would see it enter recession.

The German government is expecting the economy to grow 0.4 per cent this year after 0.7 per cent growth in 2012.