German services sector’s November performance was the weakest in nine months – PMI
The recent contraction of Germany’s service sector in November marks a concerning economic shift, as highlighted by the HCOB final services PMI, which dipped to 49.3 from 51.6 in October. This decline, below the 50-point threshold that indicates expansion, is the first contraction in nine months. It adds to existing struggles in Germany’s manufacturing sector and raises alarms about the potential stagnation or contraction of the economy in the fourth quarter.
Key Insights:
- Weak Demand and Political Turbulence: The downturn stems from weakened demand, heightened international competition, and domestic political instability following the collapse of the three-way coalition. Upcoming snap elections in February add further uncertainty.
- Composite PMI Decline: The broader composite PMI, encompassing both services and manufacturing, fell to 47.2 in November from 48.6 in October, signaling continued economic stress.
- Employment and Costs:
- Employment in the service sector has been declining for five consecutive months, the longest streak since 2009, though the rate of job cuts slowed slightly.
- Rising wages have intensified cost pressures, pushing output price inflation to its highest level since April.
- Export and Domestic Business Challenges:
- New business declined as firms faced fewer inquiries, especially from the public sector and manufacturers.
- Export business continued to contract for the fifth straight month, albeit at a slower rate than before.
These data suggest that Germany, traditionally Europe’s economic powerhouse, is grappling with significant headwinds that could weigh on broader Eurozone growth. The combination of weak domestic demand, political uncertainties, and persistent industrial challenges makes economic recovery in the short term uncertain.