German Service Sector Contracts for a Third Month

Germany's S&P Global Flash Services PMI rose to 49.6 in July 2026 from 48.6 in June, marking a four month high and beating market expectations of 49, according to preliminary estimates. Although the index remained just below the 50 threshold, it pointed to a much slower pace of contraction, with business activity nearing stabilization after four consecutive months of decline. The downturn in new business also eased, reflecting improving demand conditions across the services sector. Business confidence strengthened and climbed back above its long run average, signalling greater optimism about the outlook. On the price front, input cost inflation accelerated slightly, with firms citing higher fuel prices alongside persistent wage pressures. Services companies also increased their selling prices at a somewhat faster pace, suggesting that cost pressures continued to be passed on to customers despite the still subdued pace of activity.

Germany’s Services PMI was revised sharply higher to 48.6 in June 2026, up from the preliminary estimate of 46.8 and above May’s final reading of 48.1. However, the latest figure still signaled a third consecutive month of contraction in service activity, as weak demand continued to weigh on the sector. New orders declined for a fourth straight month, with the drop more pronounced than in May. Firms cited challenging economic conditions, including tighter financial constraints and low domestic confidence, as key factors. A marked decline in foreign demand also contributed to the overall reduction in new business. Outstanding business continued to shrink, employment levels fell for a sixth month, and backlogs were depleted at the fastest rate since August 2025. On prices, both input and output cost inflation slowed from recent highs, partly due to lower fuel costs. Finally, business confidence weakened further in June.

The S&P Global Germany Services PMI declined to 46.8 in June 2026 from 48.1 in May, well below the market forecast of 49, according to flash estimates. This was the third consecutive month of contraction and the most pronounced since November 2022. New orders dropped at the fastest pace in nearly two and a half years, with respondents citing deteriorating economic conditions and heightened market uncertainty. Cost inflation in the sector eased, although it remained elevated by historical standards. Average charges for services rose at the slowest pace in three months, but one that was still above the long-run average. Confidence among service providers fell slightly after rebounding in May, though it remained comfortably above April’s recent low.