Germany’s Services Sector Sees Modest Growth in October, But Demand Weakness Persists

Germany’s services sector experienced a slight improvement in October, with the HCOB Germany Services PMI rising to 51.6 from 50.6 in September, marking its first growth acceleration in five months. Although this three-month high signals expansion, underlying demand remains fragile, as shown by a drop in new business for the second consecutive month.

Employment Declines Amid Soft Demand

Despite the uptick in services activity, employment in the sector continued to decline for the fourth month in a row, the longest streak of job reductions since 2009. This trend is largely driven by insufficient new work and tepid international demand, particularly from within Europe.

Inflation Eases as Wage Pressures Slightly Raise Input Costs

Inflationary pressures in the sector have softened, with output price inflation at its second-lowest level in over three years. However, firms did report a modest rise in input costs, primarily due to increased wages.

Cautious Optimism Despite Challenges

While firms in Germany’s services sector are cautiously optimistic, their outlook is guarded, with hopes for an economic rebound and improved purchasing power balancing concerns over ongoing demand weaknesses.

Mixed Signals from Composite PMI

The broader HCOB Germany Composite PMI, covering both services and manufacturing, remains in contraction territory at 48.6, slightly improved from September’s 47.5. This slight rise reflects a slower decline in manufacturing, coupled with stronger services growth, but it underscores the challenging economic conditions Germany faces.

The data highlights a mixed picture: while the services sector is showing resilience, broader economic uncertainties and sluggish demand continue to weigh on Germany’s overall economic trajectory.