Germany's service sector faced a sharp contraction in May 2025, with the services PMI dropping to 47.1, 0.1 points below the consensus and its lowest point in 30 months. This signalled the steepest fall in activity since November 2022. This decline was fuelled by persistent demand weakness and rising uncertainty among clients, especially foreign ones, leading to the steepest drop in new business since February 2024.

The composite PMI also slipped to a five-month low of 48.5 (0.1 points below the consensus), confirming a broader economic softening. Despite a modest rise in employment for the fifth consecutive month, job creation slowed, reflecting reduced backlogs and cautious sentiment.

Although business expectations slightly improved from April, they remained below the long-term average due to ongoing geopolitical anxieties. Price dynamics provided some relief: both input and output price inflation eased, with output charges rising at the slowest pace since October 2024. Still, elevated wage pressures meant that costs remained above historical norms.

Overall, the data point to a service sector weighed down by fragile demand and external headwinds, with only tentative signs of stabilisation in sentiment and inflation pressures. The latest update takes the RPI to minus 11 and the RPI-P to minus 8, meaning economic activities are just behind expectations in Germany.

No change from the flash at 48.6 is the call for the May composite final, down from 50.1 in April. No change is expected from the flash at 47.2 for services, down from 49.0 in March.

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.