The HCOB, Germany’s Services Sector PMI climbed to 51.2 in December 2024, up from 49.3 in November and marginally surpassing initial forecasts of 51. This reading marks a return to expansion for the services sector after a brief contraction, reflecting cautious improvement. However, the growth remains fragile amid persistent economic headwinds.

Mixed Demand Signals

New business inflows continued to decline for the fourth consecutive month, highlighting ongoing challenges. Factors such as customer uncertainty, reduced public sector projects, and weak manufacturing demand weighed on the sector. Despite this, overall activity was bolstered by backlog work, which helped mitigate the effects of subdued demand.

Employment and Price Dynamics

Employment trends remained negative, with staffing levels declining for the sixth straight month. Companies adjusted their workforce in response to limited demand and rising cost pressures. On the pricing front, input cost inflation accelerated, reaching its fastest pace since February, driven primarily by wage growth. Consequently, output charges increased, hitting an eight-month high as businesses passed on higher costs to clients.

Read More: Germany Manufacturing PMI

Cautious Optimism Ahead

Looking ahead, business sentiment improved slightly, supported by hopes of lower interest rates and greater stability following recent elections. However, growth expectations remained subdued compared to historical norms, indicating lingering concerns about the broader economic environment.

Germany’s services sector shows signs of resilience, but sustained recovery will depend on overcoming demand challenges and navigating inflationary pressures.