Germany's service sector reported a slight uptick in business activity in December 2024, but escalating input costs and output price inflation highlighted ongoing challenges, according to the latest HCOB Germany Services PMI® survey on Monday. The HCOB Germany Services PMI Business Activity Index rose to 51.2 in December, up from November's 49.3, marking a two-month high and signaling a return to growth for the sector. However, the Composite PMI Output Index, which combines services and manufacturing, remained in contraction territory at 48.0, despite a modest improvement from November's 47.2. Activity Growth: The increase in service sector activity was primarily supported by progress on backlogged projects as new business inflows declined for the fourth consecutive month. Inflationary Pressures: Input costs rose at the fastest pace since February 2024, driven largely by wage increases, leading to an accelerated rate of output price inflation, the highest in eight months. Employment Trends: The sector experienced a sixth consecutive month of job reductions, though the decline in staffing levels was modest. Reductions were attributed to fewer new projects, productivity gains, and cost-saving measures. Despite sluggish demand, German service providers expressed cautious optimism about business prospects for 2025. This sentiment was bolstered by expectations of lower interest rates and political stability following next year's elections. However, concerns over weak manufacturing activity and limited public sector projects dampened overall growth expectations. "The main takeaway from the December PMI in services is weak growth paired with strong inflation—stagflation at almost its finest." Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said. "The surge in costs is jaw-dropping, with the PMI input prices index jumping nearly four points, marking the fastest increase since February last year. The primary culprit here is likely wages, which soared nearly 9% in the third quarter compared to the previous year." Attribution: Amwal Al Ghad English Download
