Business activity essentially stagnated at the start of 2023. The 49.7 flash composite output index was revised a little stronger to 49.9 and so just a tick short of the 50-expansion threshold. The final January reading was up from 49.0 in December, its third increase in as many months.

A stronger services sector was partly responsible for the headline amendment with the 50.4 flash sector PMI revised up to 50.7. This compared with December's final 49.2 and was the first time in seven months that the index has been above the 50-mark. New business continued to decline but the rate of contraction was the slowest in seven months but activity would have been softer without a further reduction in backlogs. Still, employment growth in January accelerated and posted its strongest reading since last July. To this end, business expectations for the year ahead rose sharply and for a fourth successive month to reach their highest level since last February.

Input costs continued to climb steeply but negative base effects helped to reduce the inflation rate to its lowest mark since September 2021. A similar pattern was true of output prices although here the inflation rate fell only fractionally and remained well above its long-run average.

The latest findings suggest that economic activity in Germany is beginning to stabilise although underlying trends typically remain soft. First quarter GDP growth is unlikely to impress. Still, with both the ECDI and ECDI-P at 1, in general the economy is performing in line with market expectations.

No revisions are expected to the flash data.

The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of around 1,000 manufacturing and service sector companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) output versus the previous month and the closer to 100 (zero) the faster is output growing (contracting). The report also contains the final estimate of the services PMI. The data are provided by S&P Global.

The Purchasing Managers Index (PMI) survey has developed an outstanding reputation for providing the most up-to-date possible indication of what is really happening in the private sector economy by tracking variables such as sales, employment, inventories and prices. The indices are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries (including the European Central Bank) use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.