Germany's private sector began the fourth quarter of 2025 with its fastest output growth in over two years, signalling a firm recovery in economic activity. The German composite PMI rose to 53.8, a 29-month high, driven primarily by robust expansion in the services sector (54.5). Manufacturing also showed slight improvement (49.6), though it remained below the growth threshold. The strong performance was underpinned by renewed new orders and rising backlogs for the first time since mid-2022, suggesting strengthening domestic demand.

However, the revival came with notable inflationary pressures as both input and output costs climbed to their highest levels in eight months. Services drove much of this cost acceleration, even as manufacturers continued to face subdued export demand and workforce reductions. Employment overall remained weak, extending a 17-month decline, although service providers continued cautious hiring.

Despite improving growth and demand, business confidence softened, with firms wary of persistent cost pressures, geopolitical instability, and declining international competitiveness. The October PMI results, therefore, portray a fragile yet broad-based recovery, where structural challenges in manufacturing and external trade constraints offset momentum in services. This latest update takes the RPI to minus 3 and the RPI-P to 5, meaning that economic activities are within the expectations of the German economy.

The composite index is expected at 51.0 versus 52.0 in September final. Manufacturing is seen at 49.0 versus 49.5 and services at 51.0 versus 51.5.

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.