• Prior 47.3
  • Composite PMI 46.4 vs 46.2 prelim
  • Prior 44.6

The German services sector grew marginally towards the end of Q3 but demand conditions are still subdued for the most part, with new business seeing an accelerated decline on the month. Adding to that is the first drop in employment conditions since mid-2020 and that could be an interesting point of discussion in the months ahead if it continues. HCOB notes that:

“The recently started downturn in the German services sector looks like it is sticking around for a while. The speedy drop of new business is waving a red flag supporting this outlook. The business activity index moved a tiny bit above 50, but this basically means that service output more or less flatlined at the level it plumbed in August. Add to that, growth of activity is mainly down to chewing through backlogs of work, which are still on the slide.

"Employment has declined at a modest rate. However, this is the first time in more than three years that cuts are happening at all. It is like a highlighter marking up that the sector's downturn is picking up pace. In the same vein, confidence about being able to expand activity over the next 12 months has been dialed down a notch.

"As the HCOB Composite PMI remains in contractionary territory, our GDP nowcast tells us that economic growth will be well below the zero line. Furthermore, we expect another drop of GDP in the fourth quarter. Thus, we assume that in Germany recession bells started ringing in the third quarter.

"The services sector is still wrangling with higher input prices. Costs increased at a similarly high rate to the month before. Service providers could not pass these bumper costs along fully. Therefore, their profit margins are most probably feeling the squeeze."