Germany's economy contracted further in November, with business activity declining at its fastest pace in nine months. The flash composite PMI fell to 47.3, some 1.3 points below the consensus forecast. This marks the fifth consecutive month of contraction, driven by renewed weakness in the service sector, which slipped into contraction territory at 49.4 for the first time in nine months. Manufacturing also remained a drag despite a slight improvement (43.2, a four-month high and 0.2 points above the consensus).

Weaker demand across services and manufacturing led to six consecutive months of job losses. Services saw fewer new orders amid client uncertainty, while manufacturers faced weak output and declining new work. Backlogs fell as pressure on capacity eased. Inflationary pressures rose in services, with costs and prices increasing at the fastest rate since April. Conversely, manufacturers experienced steep price deflation due to subdued demand and supply chain issues.

While expectations improved slightly, confidence remains historically low, highlighting ongoing economic struggles. This update takes the RPI to minus 36 and RPI-P to minus 57, meaning that economic activity, in general, is falling well short of market expectations.

The consensus looks for the composite flash at 48.6, manufacturing flash at a very weak 43.0, and services flash still showing expansion at 51.6.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of around 1,000 manufacturing and service sector companies. The flash data are released around ten days ahead of the final report and are typically based upon around 85 percent of the full survey sample. Results covering a range of variables including manufacturing output, employment, new orders, backlogs and prices are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The report also contains flash estimates of the manufacturing and services PMIs. The data are produced by S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.