BERLIN (Reuters) -Germany's manufacturing sector activity dipped slightly in September, driven primarily by a renewed fall in new orders, even though production growth hit its highest level in 3-1/2 years, a business survey showed on Wednesday.
The HCOB final Purchasing Managers' Index (PMI) for German manufacturing, compiled by S&P Global, slipped to 49.5 in September from August's 38-month high of 49.8 points.
The final reading is 1.0 point higher than an initial reading of 48.5, placing it barely
below the 50.0 mark that separates growth from contraction in the survey results.
New orders shrank for the first time in four months, with heightened uncertainty, strong international competition and the impact of U.S. tariffs cited as reasons for the decline.
"This development is likely to mean that output, which rose quite solidly in late summer, will grow only marginally in the coming months, if at all," said Hamburg Commercial Bank chief economist Cyrus de la Rubia.
Despite the overall dip, production grew for the seventh month in a row and at its quickest pace since March 2022, supported by strong performance in the investment goods segment.
However, employment continued to decline, with job cuts accelerating at the fastest pace since June, and inventories of purchased materials being reduced, albeit at a slightly slower rate than in previous months, according to de la Rubia.
"It is quite obvious that the German government's announcements of strong growth in investment and defence procurement in the new budget for 2026 are only being given limited credence," he added.
Germany's finance minister last week presented to parliament the 2026 draft budget, with the second-highest borrowing level in history aimed at reviving growth in Europe's biggest economy.
(Reporting by Miranda Murray; Editing by Hugh Lawson)
