German manufacturing sector contracts as new orders slump - PMI

BERLIN (Reuters) - Germany's manufacturing sector contracted in July for the first time in over two years, hurt by a deepening slump in new orders that darkens the outlook for Europe's largest economy, a survey showed on Monday.

S&P Global's final Purchasing Managers' Index (PMI) for manufacturing, which accounts for about a fifth of Germany's economy, fell to 49.3 from 52.0 in June. A Reuters poll of analysts had pointed to a July reading of 49.2.

An index of new orders came in at 40.1, dropping further below the 50 mark, which separates growth from contraction, and slumping to its lowest level since May 2020.

"The potential for a shortage in gas supplies has German manufacturers seriously worried about the outlook for production in the coming year," Phil Smith, Economics Associate Director at S&P Global Market Intelligence, said in a statement.

"Goods producers' expectations turned negative back in March and have deteriorated in almost every month since as downside risks to the sector's outlook continue to build," he added.

The German economy stagnated in the second quarter, data showed on Friday, with the war in Ukraine, pandemic and supply disruptions pushing it to the edge of contraction.

The survey pointed to some relief on the inflation front, with the rate of input cost inflation across the manufacturing sector cooling for the third month running to the lowest since February 2021.

(Writing by Paul Carrel; Editing by Toby Chopra)