Germany Services Sector Contraction Slows in June Amid Easing Cost Pressures
Germany's Services Sector Performance in June
By Miranda Murray
BERLIN, July 3 (Reuters) - Germany's services sector contracted for a third straight month in June as weaker demand, dragged down by higher prices and lower market confidence, continued to weigh on activity, a survey showed on Friday.
HCOB Germany Services PMI Results
The final HCOB Germany Services Purchasing Managers' Index, compiled by S&P Global, rose to 48.6 in June from 48.1 in May, nearly two points higher than an initial reading of 46.8.
Interpreting the PMI Reading
A reading below 50.0 indicates contraction, and the further it falls below that number, the faster the rate of contraction.
June's reading, which is the highest since the downturn began in April, thus indicates only a moderate rate of decline.
Factors Impacting the Services Sector
Challenging Economic Backdrop
"The service sector continues to suffer from the generally more challenging economic backdrop seen since the start of the Middle East war," said Phil Smith, economics associate director at S&P Global Market Intelligence.
Weaker Demand and New Business Decline
New business fell for a fourth straight month and at a faster pace than in May, as firms cited difficult economic conditions, tighter financial conditions and weak confidence in the domestic market. New work from abroad also declined markedly.
Backlogs and Capacity Pressures
A lack of incoming orders also led to another fall in backlogs of work, with the pace of depletion accelerating to its fastest since August last year.
"A steep and accelerated reduction in backlogs of work points to low capacity pressures in the sector and suggests there will be little appetite for hiring in the coming months," said Smith.
Employment Trends
Employment fell for a sixth consecutive month in June, though the decline was only marginal and the weakest in that run.
Cost Pressures and Inflation
Input Price Inflation
Input price inflation slowed sharply to its lowest since November last year, helped in part by lower fuel prices.
Outlook Amid Uncertainty
Smith said the subsiding cost pressures were encouraging but added that the dynamics for the coming months are unclear as developments in the Middle East remain unpredictable.
Composite PMI Overview
The final S&P Global Germany composite PMI, which includes services as well as manufacturing, rose to 49.5 in June from 48.8 the month before.
(Reporting by Miranda Murray; Editing by Toby Chopra)
