In May 2025, Germany's economic landscape showed growth fragility, as overall business activity contracted for the first time this year. The German composite PMI fell to 48.6, down from April's 50.1, 1.7 points below the consensus forecast and signals a mild yet concerning downturn. This was primarily driven by a deeper contraction in the services sector, where activity slumped to a 30-month low (47.2), reflecting persistent demand weakness and heightened customer uncertainty.

Meanwhile, manufacturing offered a glimmer of resilience. Although the headline PMI remained below 50, production rose for a third consecutive month (48.8), supported by the fastest rise in export orders since early 2022, particularly from the US and parts of Europe. However, this manufacturing momentum was not strong enough to offset the broader drag from services. Employment dipped slightly, and backlogs of work continued to shrink, indicating easing capacity pressures.

Despite these challenges, business optimism ticked up, especially in manufacturing, buoyed by hopes of public sector stimulus and improved trade relations. Price pressures eased, with output inflation at a seven-month low. Altogether, the latest update reveals export-led manufacturing is cautiously recovering, but the services sector remains a critical weak link, posing risks to Germany's broader recovery trajectory. This latest update takes the RPI to 1 and the RPI-P to 12, meaning that economic activities are slightly ahead of expectations in Germany.

The consensus looks for the composite at 50.3 in the May flash versus 50.1 in the April final; manufacturing at 49.0 in the May flash versus 48.4 in April; services expected at 49.7 versus 49.0.

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.