German business activity was stronger than originally thought at year-end but still contracted for a sixth consecutive month. At 47.4 the final composite output index was an unusually large 0.7 points above its flash estimate but still 0.4 points short of its final November reading and well below the 50-expansion threshold.

The upward revision reflected a less weak service sector where the flash 48.4 PMI was revised up to 49.3. This was just 0.3 points beneath its final mid-quarter print and close enough to 50 to signal broad stagnation. Even so, new orders continued to decline and at a slightly faster pace than in November and backlogs were also trimmed further. Accordingly, staff numbers were reduced for a third time in the last four months and, while only modest, the drop was the steepest since June. However, business expectations about the year ahead were little changed and so still optimistic, albeit subdued by historical standards,

Inflation news was not favourable. Rising wages contributed to the largest increase in input costs in seven months and factory gate inflation climbed to a 4-month peak.

In sum, the final December data remain in line with recession having arrived in Germany at year-end. However, the ECB will note the pickup in both cost and output price inflation which warns that financial markets may be overly aggressive in their interest rate cut expectations for 2024. Today's report boosts the German RPI to minus 18 and the RPI-P to minus 13 indicating overall business activity is still struggling to keep up with market expectations.

No revisions are expected leaving the composite output index at 46.7, down from November's final 47.8, and the services PMI at 48.4, down from 49.6.

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.