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Germany’s private sector recorded its first contraction in nearly a year during the past week, as heightened geopolitical tensions linked to the Iran conflict disrupted economic momentum. Data from S&P Global indicated that the composite Purchasing Managers’ Index (PMI) fell below the growth threshold, reflecting weakening demand across services and manufacturing. The downturn was led by a sharp decline in services activity, while manufacturing growth moderated. Businesses reported rising input costs, cautious customer sentiment, and declining new orders. Inflationary pressures intensified, and business confidence weakened, with employment continuing to decline. The data points to broader economic strain in Europe’s largest economy amid persistent uncertainty and rising energy prices.
Germany’s private sector moved into contraction territory during the past week, as escalating geopolitical tensions in the Middle East weighed on economic activity, according to flash PMI data compiled by S&P Global. The composite index, which tracks both manufacturing and services, dropped to 48.3 from 51.9 in the previous month, marking its first fall below the 50 threshold since May last year and signalling a decline in overall business activity. Advertisement
The downturn was primarily driven by the services sector, where the PMI declined to 46.9 from 50.9, its lowest level since late 2022. This contraction offset the continued, albeit slower, expansion in manufacturing, where the index eased to 51.2 from 52.2. Together, these sectors account for more than two-thirds of Germany’s economic output, making the decline a significant indicator of broader economic conditions.
According to Phil Smith of S&P Global Market Intelligence, the recovery in Germany’s economy had been halted due to the ongoing conflict in the Middle East, which had increased uncertainty and pushed prices higher. Businesses across sectors reported that customer demand weakened considerably, with new business declining at its fastest pace since December 2024. The fall was largely attributed to reduced demand in services, while manufacturing orders saw only marginal growth.
Companies also highlighted rising input costs, with overall inflationary pressures reaching their highest levels since November 2022. Output prices in both services and manufacturing sectors increased sharply, recording multi-year highs. This trend reflects the pass-through of higher costs to consumers amid persistent supply and energy-related disruptions.
Business sentiment weakened further, with expectations for future activity dropping to their lowest level since September 2024 and turning negative for only the second time in over two-and-a-half years. The survey also indicated continued pressure on employment, with job losses extending a trend that has persisted for nearly two years.
While the labour market has so far shown limited immediate impact from the downturn, economists indicated that prolonged weakness in activity and sustained high energy prices could lead to more pronounced job cuts in the coming months.
Source - Reuters
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