Business activity in Germany grew at its weakest pace in more than two years in September and new orders fell for a third month, a survey showed, underscoring a loss of momentum in Europe's largest economy at a critical time for the euro zone.
Markit's German composite output index - a snapshot of the economy's health that combines services activity with manufacturing output - dropped to a flash reading of 50.8 from 51.3 in August, purchase managers' data showed today.
The reading was the lowest since July 2009, hovering just above the threshold of 50 that separates growth from expansion.
"The recovery in Germany's private sector economy is teetering on the brink, with both manufacturing and services growth close to stagnation," said Tim Moore, senior economist at Markit.
Germany has been one of the best-performing economies in the industrialised world since the end of the 2008 financial crisis. Yet gross domestic product growth slowed more than expected in the second quarter to just 0.1 per cent, raising questions over whether Germany can continue to support expansion in the region.
"We could see only very modest growth in the third quarter and possibly even a contraction in the fourth quarter," said Chris Williamson, also an economist with Markit.
"The recovery in Germany is really flagging. We have a contracting periphery, less demand from export markets and at the same time a big hit to confidence at home," he added.
German exports fell more than expected in July. The survey corroborated the gloomy trend shown by forward-looking German indicators of late, and comes after a string of downward revisions to German growth forecasts last week.
The government has said it still expects growth of 3 per cent in 2011.
German investor sentiment fell to its lowest level in nearly three years in September on worries about the euro zone debt crisis, according to the ZEW think tank's monthly survey, released on Tuesday.
The Ifo index, considered the best indicator of future underlying economic trends in Germany, is due next Monday.
The PMI index tracking the manufacturing sector slipped to 50.0, a two-year low, while a measure of the services sector fell to 50.3, a 26-month low. Economists in a Reuters poll had forecast 50.1 and 50.5 respectively.
Mr Williamson highlighted the fact that service providers' business expectations for the coming year slipped below 50 for the first time since April 2009, a clear harbinger of future woe. The reading stood at 48 in September, having plunged from a level of 66.3 in January, a seven-year peak.
A fall in the output price index might reassure the European Central Bank, but also showed that in a weaker climate producers were unable to pass costs on to customers.
Reuters