Germany Services Sector Sees Steepest Contraction Since 2022 as PMI Drops
Germany's Service Sector Faces Sharp Downturn Amid Inflation and Geopolitical Uncertainty
PMI Data Highlights Significant Contraction
BERLIN, May 6 (Reuters) - Germany's service sector contracted at its steepest rate in more than three years in April as demand evaporated due to rising inflationary pressures and uncertainty linked to the Iran war, a survey showed on Wednesday.
The final HCOB Germany Services Purchasing Managers' Index, compiled by S&P Global, fell to 46.9 in April from March's 50.9 and was in line with the preliminary reading.
April also marks the first time since August 2025 that the indicator fell below the 50 mark. A reading below 50 signals contraction, while one above 50 signifies growth.
It was also the fastest rate of decline since November 2022.
Factors Behind the Decline
Firms pointed to the effects of the war and ongoing uncertainty for the dip in new business, which fell for a second month in a row and at its sharpest rate since January 2024.
Unlike the manufacturing sector, which has been somewhat buffered by stockbuilding efforts, the services sector has felt the conflict's immediate impacts on demand, said Phil Smith, economics associate director at S&P Global Market Intelligence.
Composite PMI and Economic Outlook
The final S&P Global composite PMI, which includes services as well as manufacturing, fell to 48.4 in April from 51.9 the month before, bringing it into contraction territory for the first time in nearly a year.
"The chances of the German economy contracting in the second quarter have now risen," Smith said, adding that services firms are increasingly nervous about the outlook due to higher inflation and a squeeze on spending power across the economy.
Labour Market and Price Pressures
Service providers cut jobs for a fourth consecutive month, with the pace of job-shedding quickening slightly from March, while backlogs of work also fell at the fastest rate in eight months, pointing to underused capacity.
Price pressures have also intensified, leading to output price inflation jumping to a 26-month high as firms pass on higher costs to customers.
"After refraining from stronger price increases in March, which perhaps reflected initial hopes that the conflict and any associated disruption would be short-lived, services firms have started to be more aggressive with their price setting," Smith said.
(Reporting by Miranda Murray; Editing by Joe Bavier)
