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Stronger German services cushion weaker manufacturing in January - PMI

BERLIN (Reuters) - Business activity growth in Germany's services sector picked up for the first time in four months in January, slightly lifting overall private sector growth in Europe's largest economy at the start of the year, a survey showed on Tuesday.

Record-high employment, rising real wages and low borrowing costs are supporting a domestically driven upswing in Germany, which is facing increasing headwinds from a slowing world economy, trade disputes and Britain's departure from the EU.

IHS Markit's final composite Purchasing Managers' Index (PMI), which tracks the manufacturing and services sectors that account for more than two-thirds of the economy, rose to 52.1 from 51.6 in December which marked a 5-1/2 year low.

The reading was above the 50 line that separates growth from contraction and confirmed a preliminary estimate published last month. It nevertheless suggested that the economy expanded at the second-weakest rate of the past four years.

In the services sector, business activity growth increased to 53.0 in January from 51.8 in the previous month, mainly driven by domestic demand as new work received from abroad declined due to heightened uncertainty, the survey showed.

Phil Smith, Principal Economist at IHS Markit, said the rise in service sector business activity counteracted a further slowdown in manufacturing in January.

But the survey data continued "to point to only a modest rate of underlying growth across Germany's private sector at the start of the year", Smith added.

In the second half of last year, the German economy barely escaped a recession, defined as two or more consecutive quarters of negative growth. In 2018 as a whole, GDP growth slowed to 1.5 percent, the weakest in five years.

Global trade tensions and concern about Brexit have also prompted the government to slash its growth forecast for this year to 1 percent from 1.8 percent previously as a decade-long boom in Europe's economic powerhouse is losing steam.

The slowing economy also means that tax revenues will probably come in below previous estimates, meaning that the federal government is facing a budget shortfall of around 25 billion euros ($28.6 billion) by 2023, a Finance Ministry document obtained by Reuters showed on Monday.

($1 = 0.8754 euros)

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(Reporting by Michael Nienaber; Editing by Catherine Evans)

((michael.nienaber@thomsonreuters.com; +49 30 2888 5085;

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