BERLIN, Feb 21 (Reuters) - Business confidence in Germany's private-sector hit a record high in February, a survey showed on Wednesday, suggesting that a fall in activity to a three-month low did not signal the start of a contraction cycle.
IHS Markit's flash composite Purchasing Managers' Index (PMI), which tracks the manufacturing and services sectors that account for more than two-thirds of the economy, fell to 57.4, down from a near seven-year high in January.
Chris Williamson, chief business economist at IHS Markit, said political uncertainty created by Chancellor Angela Merkel's failure to form a government since an election in September did not appear to have contributed to the fall.
"The fact that expectations hit a new high suggests that companies continue to look through political uncertainty," he said.
The reading undershot the consensus forecast in a Reuters poll of economists but remained well above the 50 mark that separates growth from contraction.
Even though activity fell in both the manufacturing and services sectors, overall performance in the first quarter remained better than in the last three months of 2017, when gross domestic product expanded by 0.6 percent. Markit expects GDP growth of 0.9 percent in the first quarter this year.
"The slower overall pace of growth in February was driven by both the manufacturing and service sectors," said IHS Markit's principal economist Phil Smith. "This was the case for not only the headline output numbers but also employment and inflows of new orders."
Firms continued to create new jobs as optimism among employers towards future business activity hit a record high, driven mainly by a marked improvement in expectations in the services sector.
Williamson said increases in average prices charged for goods and services may have contributed to the slowdown: the rate of inflation recorded in February was the highest since July 2008.
