BERLIN, July 1 (Reuters) - German factory activity expanded modestly in June as output growth ticked up and new orders rebounded, while the outlook for price trends depends on developments in the Middle East, a survey showed on Wednesday.
The S&P Global final Purchasing Managers' Index (PMI) for German manufacturing rose to 50.3 in June from 50.1 the month before, coming in slightly above an earlier preliminary reading of 50.0.
A reading above 50.0 indicates growth, while below that figure signals
contraction.
Phil Smith, economics associate director at S&P Global Market Intelligence, said that companies are still relying partly on backlogged orders to support output, which in the long term is not sustainable.
"But we did see new orders return to growth in June, albeit rising only marginally," said Smith.
"There's still the risk of some payback from the front-loading of orders we've seen in recent months which, alongside high price levels and still relatively elevated levels of uncertainty, is likely to weigh on growth in the near term."
Output rose for a sixth straight month in June, with manufacturers citing lower backlogs and greater inflows of new work.
Anecdotally, the new orders were related to the defence and technology sectors, as well as an interest in building up buffer stock, according to the survey.
Smith also highlighted the noticeable easing of input cost inflation from May's near four-year high, as the drop in oil prices has started to filter through. Factory gate price inflation slowed to a three-month low.
"The direction of travel of prices in the coming months is clearly dependent on developments in the Middle East, though some lagging inflationary pressures can be expected to remain in the system regardless," said Smith.
Supplier delays also eased to their lowest in four months, though they remained elevated.
Manufacturers' expectations for output over the next 12 months improved slightly from April's recent low, but remained below the long-run average as the Middle East conflict, high costs and market uncertainty continue to weigh on sentiment.
(Reporting by Miranda Murray; Editing by Hugh Lawson)
