Germany May final services PMI 47.1 vs 47.2 prelim

• Prior 49.0
• Final Composite PMI 48.5 vs 48.6 prelim
• Prior 50.1

Key findings:

• Germany Services PMI Business Activity Index at 30-month low.
• Germany Composite PMI Output Index at 5-month low.
• Rates of input cost and output price inflation ease slightly.

Comment:

Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

“The service sector is no longer stabilizing the overall economy, it is slowing it down instead. Business activity declined for the second month in a row, new business fell more sharply than in the previous month, and work from abroad was also lower than before. However, there are many indications that this development is not sustainable, but rather attributable to the volatility of economic activity that is observed from time to time.

"The conditions for a recovery are relatively good: real wages have risen and are likely to continue to do so therefore driving up demand for services, lower interest rates are helping many companies, and the new government's expansionary fiscal policy should also have a positive impact on large parts of the service sector.

“Service providers have significantly slowed the pace of hiring, but despite weaker new business, they are not yet prepared to lay off staff on balance. This may be due to the usual lag with which lower activity is reflected in personnel decisions. However, it is also quite possible that companies are proceeding with greater caution with respect to job cuts because they are hoping for a recovery soon. This view is supported by the higher level of optimism compared with the previous month, even though it remains lower than seen on average in the past.

“The continued sharp rise in costs is a challenge for the service sector. The rise is primarily due to wage increases, as energy prices fell in May. Since it is apparently only possible to pass on smaller price increases to customers, service providers' margins are coming under pressure. An improvement in demand as a result of expansionary fiscal policy could improve the situation here in the coming months.”