Business activity in Germany’s services industry worsened more than expected last month, as the woes in the manufacturing sector bled into the greater economy, magnifying fears of a looming recession.
The composite purchasing managers’ index for the eurozone’s biggest economy showed a contraction for the first time in six years. The index, a weighted average of manufacturing and services figures, fell below the 50-point level for the first time since April 2013, according to a closely watched poll, and at the swiftest pace of contraction in seven years.
“The slowdown in the services sector in September was even worse than first feared, with the final results showing the weakest business activity growth for three years,” said Phil Smith, principal economist at IHS Markit. “A technical recession now looks to be all but confirmed.”
The composite output index fell to 48.5 in September, from 51.7 the previous month, IHS Markit said in a report on Thursday. That misses the forecasts in a Reuters poll of 49.1, which was the flash estimate.
The slowdown in new orders in the manufacturing sector deepened while services providers recorded a contraction for the first time since December 2014, the index showed. The rate of decline in total new business was the fastest since September 2012.
The final composite index for the eurozone fell to a six-year low of 50.1, a drop from the flash estimate of 50.4 and from the August final of 51.9.
Germany’s economy shrank 0.1 per cent in the second quarter, with many economists forecasting a similar performance in the third, which would drag the economy into a technical recession.
“The drop in new business at services firms is an indication that domestic demand is struggling to offset the loss of new work from abroad, and is a downside risk to the sector’s immediate growth prospects,” Mr Smith said. “The worry is that staff shedding across manufacturing could soon outweigh the employment growth in the service sector.”
France meanwhile dropped unexpectedly as September figures revealed a softer rise in business activity in the services industry, according to the IHS Markit purchasing managers’ index for the second-biggest eurozone economy. The rise was the slowest for five months while the pace of new business decelerated. Companies increased their staff numbers at the slowest pace since April, IHS said.
