Economic Buzz: German services sector contracts again, but outlook improves

Germany?s services sector saw business activity fall for the second consecutive month in May, according to the latest S&P Global PMI survey. The headline Services PMI Business Activity Index rose slightly to 48.1 from April?s 46.9, but remained below the 50.0 threshold, signalling contraction.

Weak demand, higher energy costs, tighter financing conditions, and uncertainty weighed on activity. New business declined for the third month in a row, while export orders fell at the steepest pace in a year. Backlogs of work continued to shrink, and firms cut staff for the fifth straight month, though job losses were modest.

Cost pressures stayed high, with input price inflation close to April?s three-year peak, driven by energy, transport, and wages. Service providers raised prices again, but output charge inflation eased slightly amid strong competition and client resistance to higher fees.

Despite current challenges, business confidence improved to a three-month high, supported by hopes of better geopolitical conditions. The Germany Composite PMI Output Index also remained in contraction at 48.8, though the pace of decline slowed compared to April.

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