Economic Buzz: German services PMI falls into contraction amid weak demand and rising costs

Germany?s services sector slipped into contraction in April 2026, marking the first decline in business activity in eight months, according to the latest PMI data. The S&P Global Germany Services PMI Business Activity Index dropped to 46.9 from 50.9 in March, falling below the 50 mark that separates growth from contraction. It also signalled the fastest decline since November 2022.

The downturn was driven by weakening demand, with new business falling for the second consecutive month and at the sharpest pace since January 2024. Export orders also declined significantly, recording the steepest drop in seven months. Firms widely linked the slowdown to uncertainty and inflation pressures arising from the ongoing Middle East conflict.

As demand weakened, companies reported a sharp fall in backlogs of work, indicating lower capacity utilisation. Employment also declined for the fourth straight month, with firms citing layoffs and non-replacement of staff.

Cost pressures intensified during April, with input prices rising to a three-year high, driven by higher energy, fuel, and wage costs. Businesses passed on some of these increases to customers, leading to the fastest rise in output prices in over two years.

Looking ahead, business confidence weakened further, falling to its lowest level in more than two-and-a-half years.

At the broader level, the Germany Composite PMI fell to 48.4 in April from 51.9 in March, signalling a return to contraction, mainly due to the services sector slowdown.

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