• Final Services PMI 51.2 vs. 51.0 expected and 49.3 previously.
• Final composite PMI 48.0 vs. 47.8 expected and 47.2 prior.

Key findings:

• Business Activity Index HCOB Germany Services PMI at 51.2 (November: 49.3). 2-month maximum.
• HCOB Germany composite PMI output index at 48.0 (November: 47.2). 2-month maximum.
• Rates of input cost inflation and output price inflation are accelerating.

Comment:

Commenting on the PMI data, dr. Cyrus de la Rubia, Chief Economist of the Hamburg Commercial Bank, said:

“The main conclusion from the December PMI in services is weak growth combined with strong inflation – stagflation in almost its strongest form. The rise in costs has been staggering, with the PMI input price index jumping nearly four points, the fastest rise since February last year. The primary culprit is likely wages, which rose nearly 9% year over year in the third quarter.

High inflation within the services PMI is quite unusual for an economy flirting with recession. From 2021/2022, we have seen a stark contrast between high levels of inflation and slow growth, or even stagnant activity. This mismatch began with the economic shocks of the pandemic and then the war in Ukraine, but it also hints at a structural shift, likely linked to demographics and ongoing labor market shortages.

The services sector has returned to, if only moderate, growth mode after falling below 50 in November, and respondents’ increased optimism about future business activity is good news. However, the continued decline in new jobs and open jobs dampens the positive activity figures.

It is quite significant that service activity has remained resilient despite the prolonged manufacturing recession. Historically, service activity has closely mirrored manufacturing output, except in a few cases during the Great Recession of 2008/2009. and 2019/2020. This suggests that an increasing share of services is becoming more independent of industrial activity, highlighting the increasing role of services in stabilizing the economy.”