BERLIN (Reuters) - Germany's private sector growth is on track for its strongest quarter in two-and-a-half years, a survey showed on Thursday, as humming factories in Europe's biggest economy offset a slight slowdown in activity at services companies in December.


The data reinforced expectations of a strong performance in the fourth quarter, putting the German economy on track to grow by the fastest pace in half a decade in the whole of 2016.


But forecasts published by leading economic institutes showed the economy is heading towards an economic slowdown in 2017 which is also an election year in Germany.


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, edged down to 54.8 in December from 55.0 in November.


That was in line with the consensus forecast in a Reuters poll and comfortably above the 50 mark that separates growth from contraction.


Together with a reading of 55.1 in October, the PMI data for the final three months of 2016 pointed to the strongest quarter since the second quarter of 2014, IHS Markit said.

The survey showed activity among manufacturers accelerated more strongly than expected to 55.5, a 35-month high, thanks to a rise in goods production, an uptick in new orders and as firms increased their stocks of purchases.

"Germany's manufacturing sector appears to be in particularly good health," said Philip Leake, an economist at IHS Markit.

"Encouragingly, goods producers look to be preparing for further sales in 2017 as stocks of purchases were built up for the first time since October 2014," Leake said.

While activity among services companies grew at its slowest rate since September and below the Reuters consensus forecast, firms remained optimistic, pointing to a further increase in activity in 2017.

The PMI survey added to other data suggesting company executives are shaking off the political uncertainty sparked by Britain's decision to leave the European Union and the election of Donald Trump as U.S. president..

IHS Markit Chief Economist Chris Williamson said the PMI data pointed to an acceleration of German growth to around 0.5 percent or higher in the fourth quarter.

This would mark a sharp rebound after Germany's quarterly growth rate halved to 0.2 percent in the third quarter as exports weakened.

The government expects an overall growth rate of 1.8 percent in 2016, which would be the strongest in five years.

The Leibniz Institute for Economic Research (RWI) said on Thursday it expected economic growth to cool to 1.2 percent in 2017, in line with the latest DIW economic institute's forecast.

The Kiel Institute for the World Economy (IfW) is more optimistic, expecting strong domestic demand to propel growth of 1.7 percent next year.

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(Reporting by Caroline Copley and Michael Nienaber)