The German service sector saw its business activity growth slow for the second consecutive month, as reflected in the PMI survey. The business activity index fell from 53.1 in June to 52.5 in July, indicating the weakest expansion since March. This slowdown led to the first employment decrease in the sector this year, despite a slight improvement in business expectations.

Service providers reported a slower rate of price increases, marking the lowest inflation since April 2021, although still high compared to pre-pandemic levels. Costs rose slightly after hitting a three-year low in June, driven mainly by wage pressures.

New business intakes increased for the fourth month, but the growth rate slowed, partly due to a modest decline in international orders. Companies worked through their backlogs at the fastest rate since February, leading to reduced staffing needs.

Despite continued operating expense increases, the inflation rate for service prices eased, further distancing from 2022's peaks. Looking ahead, business sentiment improved slightly from June's five-month low, though it remains below May's peak. Firms remain hopeful for growth, bolstered by expansion plans and expectations of better economic conditions.

As things stand, the RPI remains well in negative territory at minus 29, while the RPI-P currently stands at minus 38, meaning that economic activity, in general, is now running behind market forecasts.

No revisions are expected leaving the headline composite output index at 48.7, down from June's final 50.4.

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.