German Private Sector Activity Continues To Shrink

Germany's private sector continued to shrink in December albeit the pace of contraction softened on a slight rebound in services activity, flash data from S&P Global showed Monday.

The HCOB composite output index registered 47.8 in December, up from November's nine-month low of 47.2. However, the reading is still below the 50.0 threshold that separates growth from contraction.

The services activity re-entered the expansion zone at the end of the year but it failed to compensate for a steep and accelerated decline in manufacturing output.

The flash services Purchasing Managers' Index advanced more-than-expected to 51.0 from 49.3 a month ago. The expected score was 49.5.

Meanwhile, the flash manufacturing PMI declined to 42.5 from 43.0 in the previous month. The score was forecast to edge up to 43.1.

The improvement in services is a good counterbalance to the quicker decline in manufacturing output, giving some hope that GDP might not have shrunk in the last quarter of the year, Hamburg Commercial Bank Chief Economist Cyrus de la Rubia said. Inflows of new business showed the steepest fall since September as rates of decline quickened in both monitored sectors.

There was another notable decrease in backlogs of work as firms were able to process and complete new orders far more quickly than they were being received, the survey showed.

Factory job losses declined at a slightly slower pace, while services employment dropped only marginally.

Reports of layoffs and hiring freezes tallied with an uncertain business outlook. Expectations for output in the coming year improved from September but it remained below the long-run average.

Turning to prices, the survey showed a further pick-up in inflationary pressures. Input costs rose at the fastest rate since April. It was a similar story for average prices charged, which posted the most marked increase since February.

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