Germany's service sector continued its expansion in February, but the pace of growth slowed, highlighting persistent fragility in demand. The Germany services PMI business activity index declined to 51.1, down from 52.5 in January, marking a three-month low. Similarly, the composite PMI output index dipped slightly to 50.4, suggesting limited overall economic momentum.

New business inflows remained weak, contracting for a sixth month due to customer budget constraints and sluggish industrial activity. However, the decline in new export business eased, helping to moderate the overall downturn. With demand subdued, service firms increasingly relied on backlogs of work, which depleted at the sharpest rate since mid-2020.

Employment rose for a second consecutive month, though slower, with strategic hiring in sales positions reported. Meanwhile, labour costs continued to exert inflationary pressure, increasing input costs. Although firms passed some of these costs onto consumers, the price increase remained moderate.

Optimism for future growth softened as businesses weighed the potential benefits of stabilising the political landscape against ongoing inflation and staff shortage concerns. While the sector remains in expansion territory, its recovery lacks the strength needed for sustained resilience. This latest update takes the RPI to minus 11 and RPI-P to minus 13, meaning that economic activities are now slightly behind market expectations of the German economy.

Forecasters see no revision from the flash at 51.0 for the composite and at 52.2 for services.

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.