Germany’s Private Sector Activity Contracts at Fastest Pace in 18 Months

Private Sector Activity Weakens Further

Germany’s Composite Flash PMI, compiled by S&P Global, declined to 48.0 in June from 48.8 in May. This reading came in below the 49.6 expected by analysts polled by Reuters and remained under the 50.0 mark that separates growth from contraction.

Phil Smith, economics associate director at S&P Global Market Intelligence, said business activity fell for a third consecutive month and at the quickest rate in this sequence. He noted that this development “further increas[es] the likelihood of the economy having slipped back into contraction in the second quarter.”

Business expectations for the coming 12 months weakened slightly overall and remained below the long-run trend, according to the survey.

Services Sector Leads the Downturn

The services sector was the main source of weakness. The flash services PMI fell to 46.8 in June from 48.1 in May, marking its lowest level since November 2022. Smith said the service sector “continues to act as a notable drag on the economy,” with rates of decline in both business activity and new work accelerating in June.

Manufacturing showed relative stability but did not offset the services contraction. The manufacturing PMI edged down to 50.0 from 50.1, hovering on the threshold between expansion and contraction. New business in the private sector declined for a fourth consecutive month and at the fastest rate since December 2024.

Inflationary Pressures Ease

Despite the deterioration in activity, the survey pointed to some easing in price pressures. Smith highlighted that “inflationary pressures have started to ease off.” Input cost inflation fell to a four-month low, while firms’ output price inflation slowed to its weakest pace in three months.

These developments suggest some relief on the cost side for German firms, even as weaker demand and falling new business weigh on overall activity.

FAQ

What is the Composite Flash PMI for Germany in June?
The Composite Flash PMI for Germany fell to 48.0 in June from 48.8 in May.

Which sector contributed most to the decline?
The services sector led the downturn, with its PMI dropping to 46.8, the lowest reading since November 2022.

What is the situation in German manufacturing?
The manufacturing PMI edged down slightly to 50.0 from 50.1, indicating activity at the borderline between growth and contraction.

How did inflationary pressures develop according to the survey?
Input cost inflation eased to a four-month low, and output price inflation slowed to its weakest pace in three months, indicating reduced inflationary pressures.