German service sector grows modestly in December despite rising costs, PMI shows

BERLIN (Reuters) - Germany's service sector experienced a slight uptick in business activity in December, bringing it back into growth territory despite increasing price pressures, a survey showed on Monday.

The HCOB final services Purchasing Managers' Index rose to 51.2 in December from 49.3 in November, coming in slightly above a preliminary reading of 51.0.

Any reading above 50 indicates expansion.

The growth was largely supported by progress on backlogs as new business inflows continued to fall, marking the fourth consecutive month of decline.

This was attributed to customer uncertainty, a lack of public sector tenders and weak demand from the manufacturing sector. Consumer services, however, saw a healthy intake of new work.

Despite the modest growth, the sector faced significant cost pressures. Input costs rose at the fastest rate since last February, driven primarily by wage increases, which led to a marked rise in output prices.

"The main takeaway from the December PMI in services is weak growth paired with strong inflation - stagflation at almost its finest," said Hamburg Commercial Bank chief economist Cyrus de la Rubia.

He noted that the services sector's resilience, despite the manufacturing recession, highlights its growing independence from industrial activity.

The HCOB Germany Composite PMI, which includes both services and manufacturing, remained in contraction territory at 48.0, up from November's nine-month low of 47.2.

Employment in the service sector fell for the sixth consecutive month, although the decline was modest.

Firms cited cost-saving efforts and a lack of new projects as reasons for workforce reductions.

(Reporting by Reuters, Editing by Miranda Murray and Hugh Lawson)