German services sector growth stays anemic: PMI

Growth in Germany’s services sector stayed weak in November, a survey showed on Wednesday, with persistent labor shortages pushing up wages as companies continued to add staff despite a drop in new orders. 

IHS Markit’s final services Purchasing Managers’ Index (PMI) edged up to 51.7 from 51.6 in October, also beating a preliminary reading of 51.3. 

The final composite PMI, which tracks the manufacturing and services sectors that together account for more than two-thirds of economic activity, rose to 49.4 from 48.9, staying below the 50 mark that separates growth from contraction. 

Phil Smith, Principal Economist at IHS Markit, said the unusually weak services figures of the past three months suggested the overall economic growth picture was looking “flat at best”. 

The German economy – Europe’s largest – grew by just 0.1% in the third quarter following a 0.2% contraction in the previous quarter. Solid household spending and a booming construction sector are expected to prop up growth in the current quarter. 

Record-high employment, inflation-busting pay hikes and historically low borrowing costs have turned private consumption into a steady and reliable driver of growth in Germany, helping to cushion its export-dependent economy from trade problems. 

Services firms relied on backlogs in November as inflows of new work fell for the third month in a row, the survey showed. 

However, service providers continued to recruit additional staff and raised pay to retain experienced employees, Markit said, adding that many firms were able to offset higher operating costs by raising charges. 

“Services price pressures continue to run relatively high, which the survey indicates is being largely underpinned by increasing wages, representing another boon for consumer spending,” Smith said. 

A survey last week showed that the mood among German shoppers rose unexpectedly heading into December, suggesting that household spending will support growth at the end of the year.

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