German service sector business activity growth eased in October

German service sector business activity growth slowed to a three-month low in October. The headline seasonally adjusted final IHS Markit Germany Services PMI Business Activity Index dropped to 54.7 in October from September’s eight-month high of 55.9 and its lowest reading since July.

The index was above its long-run average and hinted at the continuation of a record sequence of growth that started in mid-2013. The rise in business activity at the beginning of the fourth quarter was widespread by sub-sector, with the most solid paces of growth found to be in Financial Intermediation and Renting & Business Activities.The final IHS Markit Germany Composite Output Index dropped to 53.4 in October from 55. The reading was the joint-lowest seen in over two years. Along with a slower rise in services business activity, latest data also showed manufacturing output growth alleviating to the softest in almost four years.

October month recorded an increase in inflows of new business throughout the German service sector, attributed in general to stronger demand in the domestic market. Though strong by historical standards, the pace of new order growth was markedly softer than in September and the slowest for five months.

Rising workloads continued to encourage service providers to take on additional staff in October. In several cases, companies recorded pressure on capacity, with backlogs of work in the sector rising for the eighth straight month and to the greatest degree since April. Accordingly, the rate of job creation remained solid and among the most rapid recorded in the last 11 years, pulling back only slightly from September’s recent peak.

Less positively, latest data indicated that sentiment among service providers was at its lowest in almost two years. Still, the number of companies expecting activity rise in the next 12 months continued to be much greater than those forecasting a fall, with planned investments, entry into new markets and new products all hoped to underpin growth.

Inflationary pressures in the service sector continued to be elevated at the beginning of the fourth quarter. The rise in prices charged was the second most rapid in the survey history, just behind July’s record. Several companies recorded passing on higher costs of clients, with input cost inflation staying close to August’s near seven-and-a-half year high. Fuel and wages continued to be the main drivers of cost pressures, according to anecdotal evidence.

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