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BERLIN, (Reuters) - German manufacturing growth reached its highest in almost three years in December, driven by rising demand from Asia and the United States, a survey showed on Monday, suggesting the sector will contribute to an expansion in the fourth quarter.
Markit's Purchasing Managers' Index (PMI) for manufacturing, which accounts for about a fifth of the economy, rose to 55.6 from 54.3 in November to reach its highest level in 35 months.
That was slightly above a flash reading and well above the 50 line that separates growth from contraction.
"Strong growth in December meant that goods producers enjoyed their best quarter in nearly three years during Q4," Markit economist Philip Leake said. "The manufacturing sector is therefore likely to help overall GDP growth accelerate from the modest 0.2 percent pace seen in the third quarter."
He added that companies reported solid improvement in domestic demand as well as new business wins in Asia, Europe and the United States.
"There were also encouraging signs for further growth in 2017. Companies look set to hire in an effort to raise operating capacity, following the sharpest increase in backlogs of work since early-2014," Leake said.
Expansions of output and new orders underpinned the overall improvement in conditions, Market said, noting that new business increased for the 25th consecutive month with the rate of growth just below the record over that period.
Responding to the rising demand, manufacturers raised their output at a quicker pace. The rise in production was the highest since July, it said.
Inflationary pressures also increased in December. Input costs rose at the fastest pace since June 2011. The weaker euro helped to drive up import costs, Markit said.
The survey was another positive sign after Ifo's closely watched business climate index showed last month that morale among executives rose in December to its highest level since February 2014.
The economy grew 0.7 percent in the first quarter and 0.4 in the second. For the year, economic institutes predict a growth rate of 1.9 percent, mainly driven by soaring private consumption and higher state spending on migrants.
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Reporting by Joseph Nasr, editing by Larry King