Growth in Germany's services sector decelerated for the second consecutive month in July, according to a survey released on Monday. This trend further indicates that Europe's largest economy
may be losing momentum.
The HCOB final services Purchasing Managers' Index (PMI) dropped to 52.5 in July from 53.1 in June. While this figure was slightly above the preliminary flash estimate of 52.0 and remained above the 50.0 threshold separating growth from contraction for the fifth consecutive month, it nonetheless points to a slowdown.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, cautioned that growth could continue to weaken in the coming months. "If the service sector stalls, the entire economy might slide into a recession, especially as manufacturing continues to contract sharply," de la Rubia warned. "Unfortunately, a recession is no longer just a distant possibility."
A technical recession is defined as two consecutive quarters of declining gross domestic product (GDP). The German economy unexpectedly shrank in the second quarter, heightening concerns about a potential recession.
The survey also highlighted that the slowdown in the services sector contributed to the first decline in employment this year. Despite this, business expectations for growth over the coming year saw a slight improvement, partially reversing the significant drop observed in the previous month.
On the inflation front, the survey reported that the average prices charged by service providers increased at their slowest rate since April 2021, though they remained elevated compared to pre-pandemic levels.
In related news, Wall Street's major indexes closed sharply lower on Monday as recession fears in the U.S. unsettled global markets and led investors to move away from risky assets.
The composite PMI index, which combines services and manufacturing, fell to 49.1 in July from 50.4 in June. This was slightly above the preliminary reading of 48.7 but still signaled contraction. Photo by Marek Śliwecki, Wikimedia commons.