German business activity returns to growth in June, PMI shows

BERLIN (Reuters) -Business activity in Germany, Europe's largest economy, returned to growth in June, driven by a recovering manufacturing sector which saw its strongest increase in new orders in over three years, according to survey data released on Monday.

The HCOB German flash composite PMI output index, compiled by S&P Global, rose to 50.4 in June from 48.5 in May, beating a forecast of analysts polled by Reuters for 49.0.

The data adds to an air of cautious optimism in Germany, which is battling to avoid a historic third year of contraction this year.

Earlier this month, four German economic institutes raised their forecasts for 2025 and now expect growth after two consecutive years of contraction.

The composite PMI index tracks the services and manufacturing sectors that together account for more than two-thirds of the euro zone's largest economy.

The return to growth comes after business activity contracted for the first time this year in May.

The manufacturing index rose to 49.0 in June from 48.3 the previous month, in line with forecasts.

"It looks like Germany's manufacturing sector might finally be turning a corner," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

The services sector continued to contract in June, albeit at a much slower pace. Business activity in the sector improved more than expected, with the index rising to 49.4 from 47.1 the month before. Analysts had expected a rise to 47.5.

The flash PMI data are based on responses collected from June 12-19.

(Reporting by Rachel More and Miranda Murray; Editing by Toby Chopra)