Germany: August final services PMI at 51.2 vs. 51.4 preliminary

• Final services PMI 51.2 vs. 51.4 expected and 52.5 previously.
• Final composite PMI index 48.4 vs. 48.5 expected and 49.1 previously.

Main conclusions:

• Germany HCOB Services PMI Business Activity Index at 51.2 (July: 52.5). Lowest in 5 months.
• German economic composite PMI index HCOB at 48.4 (July: 49.1). The lowest in 5 months.
• Input cost inflation slows to its lowest level in three and a half years.

Comment:

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

“Without growth in the private services sector, Germany’s economic situation would be rather bleak. This sector, which accounts for just over 40% of the economy, has been a major stabilizing force, offsetting recessions in manufacturing and construction. But that support is starting to wane. Growth slowed again in August. Although lower inflation and higher wages should boost the services sector, the growth trend has been declining for three months now.

From a business perspective, the signs are positive. Cost pressure has eased somewhat and service providers have managed to increase their prices more than in the previous month. Companies have also focused on efficiency in recent times. Despite a slight reduction in their workforce, they have still managed to grow, albeit at a slower pace. If these trends continue, we could see a potential increase in profit margins. The confidence of service providers about their economic activity in a year remains average, which is good news in the current circumstances.

But moderate growth, or even weaker activity, is also to be expected. This caution is reflected in the slow pace of new business, the continued, albeit slightly slower, decline in order books and a significant drop in exports. At first glance, Germany appears to be the weakest performer in the services sector among the major eurozone countries, with France in particular having pulled ahead in August.

But this gap is probably due to the “Olympic effect,” as some survey respondents pointed out. In reality, the French services sector has stagnated at best in recent months. If we look at Italy, Germany’s performance is only slightly weaker. One could say that Germany is average, but that is hardly reassuring. If this average performance in services continues, it could make a global economic recession more likely.