German business activity hits 3-year low, service sector to recession
An S&P Global report says that a recession in Germany's service sector likely began in the second quarter of 2023.
Preliminary data revealed on Wednesday that Germany's market activities experienced their sharpest decline in over three years during August.
According to S&P Global, the HCOB German Flash Composite Purchasing Managers' Index (PMI) fell from 48.5 in July to 44.7 this month, recording the lowest rate since May 2022, an underperformance from experts' forecasts of 48.3.
At a reading below 50, the numbers indicated continued contraction in activity growth.
"Any hope that the service sector might rescue the German economy has evaporated," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. "Instead, the service sector is about to join the recession in manufacturing, which looks to have started in the second quarter."
Services business activity contracted for the first time since January as it fell from 52.3 to 47.3.
While the PMI increased to 39.1 this month compared to July's 38.8, the index remained well under the healthy threshold.
As the central bank continues to raise rates, alongside consumer uncertainty and sticky inflation, companies maintained a negative outlook. Pressure further mounted on inflation after enterprises chose to hike prices to keep up with accelerating costs and expenses.
"Services companies seem to feel surprisingly bold jacking up prices at an even quicker rate," de la Rubia added.
Last June, the Eurozone officially announced it had entered a recession. Among the main factors for this financial crisis was the downturn of the bloc's biggest economies, on top of which was Germany.
In its monthly report published on Monday, the Bundesbank said that Germany's economic production is anticipated to "stagnate" in the third quarter of 2023, after consecutive contractions seen in the first two quarters.
“High financing costs will probably continue to weigh on investment. They are also still dampening demand in the construction sector, which is likely to be increasingly reflected in production,” the German bank stated.
Europe's powerhouse is "still lackluster" and "still experiencing a period of weakness," it added.
In July, the country's year-on-year inflation rate fell to 6.2 percent as energy prices began to gradually decline.
But inflation is likely to remain above the ECB's 2 percent target "for longer," mainly due to wage pressures, the bank continued.