Services drive acceleration in German business activity in May -flash PMI

BERLIN (Reuters) – German business activity expanded for a fourth month running in May, driven exclusively by a services sector revival that more than offset a manufacturing decline in Europe’s largest economy, a preliminary survey showed on Tuesday.

The HCOB German Flash Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 54.3 in May from 54.2 in April, surpassing analysts’ expectations for a reading of 53.5 and expanding at the fastest pace seen in over a year.

May was the fourth month in a row that the indicator was above the 50 level that marks growth in activity, after seven consecutive months below the threshold.

The index tracks the services and manufacturing sectors, which together account for more than two-thirds of Germany’s economy.

The services sector posted growth, with the services PMI reading rising to 57.8 in May from 56.0 in April, reaching its highest level since August 2021.

“The good condition of the services sector suggests that consumer spending is doing better than expected, despite the inflation-driven loss of household purchasing power,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

“Manufacturing, on the other hand, is likely to be dragged down by the slump in Chinese manufacturing,” he added.

The manufacturing PMI fell to 42.9 in May, a 36-month low and down from 44.5 in April.

Expectations for the outlook suffered a setback, dropping to the lowest in five months, with more and more manufacturing firms relying on backlogs of work to support activity levels, the survey showed.

The pace of job creation eased slightly but nevertheless remained solid overall, S&P Global said in its report.

(Reporting by Maria Martinez; Editing by Susan Fenton)