Germany’s Private Sector Growth Reaches Nine-Month High (02.21.2025)

Germany’s private sector recorded its second month of growth in February, with the HCOB Flash Germany Composite PMI Output Index rising to 51.0 from 50.5 in January.

This marked the highest level in nine months. The services sector remained the primary driver of expansion, while manufacturing continued to contract, albeit at a slower pace. Despite the overall improvement, employment saw a slight decline, as job losses in manufacturing outpaced workforce growth in services.

Services Sector Maintains Expansion, Manufacturing Contraction Eases

The Flash Germany Services PMI Business Activity Index stood at 52.2 in February, slightly down from January’s 52.5, reaching a two-month low. Although growth in services slowed, the sector still recorded its third consecutive month of expansion. Meanwhile, the HCOB Flash Germany Manufacturing PMI Output Index increased to 48.5 from January’s 46.3, marking its highest level in nine months. The broader Manufacturing PMI rose to 46.1, the highest reading in two years, though still below the neutral 50.0 threshold, indicating ongoing contraction.

Demand Shows Signs of Stabilization

New business continued to decline in February, but the pace of contraction was the softest in nine months, signaling tentative signs of demand stabilization. Export orders also fell but at their slowest rate since May. However, backlogs of work continued to shrink, particularly in the services sector, where the rate of decline accelerated.

Labor Market Sees Slight Job Losses

Employment in Germany’s private sector remained under pressure in February. While service providers expanded their workforce for the second consecutive month, manufacturing firms continued to cut jobs. The overall labor market saw a slight decline in employment compared to January, reflecting the ongoing struggles in the industrial sector.

Inflationary Pressures Ease, Price Disparities Persist

Input costs and output prices moderated slightly from January’s peaks. In the services sector, higher labor costs pushed up input prices, but inflationary pressures eased overall. Manufacturing prices, on the other hand, continued to decline at a sharper rate, maintaining the contrast between rising service sector costs and falling industrial prices. Output price inflation also slowed but remained above long-term averages.

Business Confidence Softens

Looking ahead, business expectations for the next year weakened after reaching an eight-month high in January. While overall optimism remained above historical averages, sentiment dipped due to concerns over tariffs and geopolitical instability. These uncertainties weighed on business outlooks across both the services and manufacturing sectors, tempering the recent momentum seen in Germany’s private sector recovery.

Source: SP Global

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