German services activity rises to 8-month high despite demand weakness

Investing.com -- German service sector activity increased in September, reaching an eight-month high despite ongoing weakness in demand, according to the latest HCOB PMI survey data on Friday.

The HCOB Germany Services PMI Business Activity Index rose to 51.5 in September from 49.3 in August, moving back above the 50.0 threshold that separates growth from contraction. This marked the highest reading since January, though it remained below the long-run average of 52.7.

The broader HCOB Germany Composite PMI Output Index, which includes both services and manufacturing, improved to 52.0 in September from 50.5 in August, reaching a 16-month high.

Despite the uptick in activity, new business inflows fell for the second consecutive month, with companies reporting customers cutting budgets and showing reluctance to spend. The decline was modest and slower than in August, though export sales showed an increased drag.

Employment in the service sector decreased at the fastest rate since June 2020, as firms responded to weak demand and shrinking backlogs of work. The completion of outstanding projects helped support business activity despite the lack of new orders.

Cost pressures remained elevated, with firms mainly attributing rising expenses to wage pressures. This fed through to higher prices charged by service providers, with the rate of inflation quickening slightly to a four-month high.

"At first glance, the PMI figures for September are encouraging," said Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. "The service and manufacturing sectors have together seen a robust increase in output, and the pace of expansion is at its highest in sixteen months."

However, he noted concerns about sustainability: "In the manufacturing sector, new orders fell in September, ending a three-month growth streak. And in the service sector, new business has shrunk again, albeit the decrease has softened a bit compared to the previous month."

Despite current challenges, service providers remained optimistic about the year-ahead outlook, with business expectations ticking up slightly to their highest since May 2024, reflecting hopes for improved economic conditions.

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