German services PMI activity rises in July; increased demand, higher investments drive output

Service providers in Germany have registered additional growth in both output and in new orders in the month of July. The final seasonally adjusted Markit Germany Services Business Activity Index rose to 54.4 in July from 53.7 in June. The index has hinted at the quickening of the rate of expansion. Anecdotal evidence shows that increase demand and higher investments drove output growth. Out of the six monitored sub-sectors, activity was up in five sub sectors. Transport and storage companies registered a decline.

The final Markit Germany Composite Output Index, which gauges the combined output of service and manufacturing sectors, was also up from the earlier month’s index. The index rose to 55.3, remaining same as its ‘flash’ reading, from June’s 54.4. Both service and manufacturers providers registered solid growth. Consistent with the trend for activity, new business placed with German service providers also rose at a rapid rate in July. But the pace of rise was more subdued than those seen in the first quarter of 2016.

Given that new business is rising further, service providers have increased hiring in a bid to raise capacity. The pace of job creation rose since June and was the most marked in 2016 so far, stated Markit. Around 17 percent of panellists hinted at higher workforce numbers. Rise in employment in turn aided businesses to work through their backlogs in July. Business outstanding dropped for the third time in the last four months. However, the pace at which work-in-hand was reduced was slower.

Service providers in Germany reported continued cost pressures in July. The pace of input price inflation reached a 32-month high. Certain firms passed higher input costs to their clients, as stressed by an additional increase in output charges. That pace of output price inflation reached four-month high; however, it continued to be moderate overall.

Even if the data for July showed current business optimism in Germany, the positive sentiment level dropped to an eight-month low, with certain firms concerned about the consequences of Brexit. However, over one-quarter of survey participants anticipate activity to rise in the coming 12 months, noted Markit.