German business activity unexpectedly contracts in April as services slump to 41-month low

Germany’s private-sector business activity unexpectedly fell into contraction in April as a sharp slowdown in services outweighed continued, though weaker, growth in manufacturing, flash survey data showed Wednesday.

The S&P Global Flash Germany Composite Purchasing Managers’ Index (PMI) Output Index dropped to 48.3 in April from 51.9 in March, falling below the 50 threshold that separates expansion from contraction for the first time since May 2025. Analysts had expected a reading of 51.1.

The decline was driven mainly by the services sector, where the business activity index fell to 46.9 from 50.9, its lowest level in 41 months.

Manufacturing remained in expansion territory, with the headline PMI easing to 51.2 from 52.2, while the manufacturing output index slowed to 51.7 from 54.0.

S&P Global said overall business activity weakened as the effects of the Middle East conflict fed through into demand, confidence and inflation.

The survey showed new orders declined at the fastest pace since December 2024, while business confidence fell to its lowest level since September 2024 and turned negative for only the second time in more than two-and-a-half years.

Phil Smith, economics associate director at S&P Global Market Intelligence, said business sentiment had “darkened considerably” since the outbreak of the conflict, warning that the labor market could weaken further if activity remains subdued and energy costs stay elevated.

“Faced with rapidly increasing costs, firms raised average prices charged for goods and services at the quickest rate in over three years in April,” he said, pointing to rising inflationary pressures.

PMI surveys are closely watched by investors as they provide an early snapshot of economic conditions and are widely used as indicators of broader growth trends.