Germany's service sector showed a modest recovery in December 2024, with the PMI rising to 51.2 from 49.3 in November, exceeding consensus by 0.2 points and indicating a return to growth. This improvement, driven by progress on backlogs, highlighted resilience amid challenges. The composite index, while still in contraction at 48.0, marked an uptick from November's 47.2, also 0.2 points above expectations. However, underlying demand remained weak due to reduced new business inflows, limited public sector tenders, and subdued manufacturing activity. Overseas demand continued to decline, though consumer services experienced robust new orders.

Employment in the sector continued to decline for the sixth consecutive month, though the reduction remained modest. Firms attributed workforce cuts to weak demand and cost-saving efforts. At the same time, rising wage bills pushed input costs to their steepest increase since February 2024, driving a sharp rise in service prices. Output price inflation accelerated, reaching its highest level in eight months.

Looking ahead, cautious optimism prevails among service providers, supported by expectations of lower interest rates and potential political stability after upcoming elections. However, concerns over the health of manufacturing and limited public sector projects weigh on long-term growth expectations, which remain below historical norms. The latest update takes the German RPI to 21 and the RPI-P to 16. This means that economic activities are well ahead of market expectations.

The consensus looks for no change from the flash at 47.8 for the composite final and 51.0 for services final.

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.