Germany's service sector fell in August, with the services PMI slipping to 49.3, nudging activity back into contraction after July's brief expansion. The data paints a picture of an economy caught between resilience and restraint. Demand fragility was the primary driver, as inflows of new work, including foreign orders, dried up, prompting firms to scale back hiring and further deplete their backlogs.

Despite this setback, business expectations remain cautiously upbeat, with confidence hovering at a six-month high. Roughly a third of firms still see brighter prospects ahead, citing investment, new products, and broader economic recovery as potential catalysts. Inflation, too, is showing a complex rhythm. Input and output costs ticked up from multi-year lows but remain below average trends, suggesting firms are navigating cost pressures with relative composure.

In essence, Germany's service sector appears to be taking a temporary decline rather than slumping into crisis. For now, activity has lost momentum, but optimism lingers, hinting that the lull may prove temporary if demand revives. The challenge lies not just in surviving thinner pipelines of work, but in converting that quiet confidence into tangible growth as the year draws to a close. The latest update takes the RPI to minus 22 and the RPI-P to minus 29, meaning activities continue to lag behind the expectations of the German economy.

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.