German business activity contracts in May amid services slump, PMI shows

By Maria Martinez

BERLIN (Reuters) -Business activity in Germany fell in May, marking the first contraction this year, as a sharp downturn in the service sector overshadowed modest growth in manufacturing, a survey showed on Thursday.

The HCOB German flash composite Purchasing Managers' Index, compiled by S&P Global, dropped to 48.6 in May from 50.1, below the 50.0 threshold that separates growth from contraction.

Analysts polled by Reuters had forecast a reading of 48.9.

The downturn was primarily driven by the service sector, with its index falling to 47.2 from 49.0 in April, reaching a 30-month low.

This decline was driven by weakening demand and customer uncertainty, marking the steepest drop since September 2024, the report said.

Manufacturing production continued to grow, albeit at a slower pace. The headline manufacturing index rose to 48.8 from 48.4 in April.

"Looking ahead, increased defence spending and a more defined infrastructure package could give the sector an extra push," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. "Plus, falling input costs, which are driven by cheaper energy, should offer manufacturers some breathing room."

Business expectations improved from April's recent low, but employment nevertheless fell slightly on the month.

(Reporting by Maria Martinez; Editing by Toby Chopra)