German business activity contracts in July: survey

German business activity contracted in July, increasing the likelihood of a recession in the second half of the year, a preliminary survey showed on Monday.

The HCOB German Flash Composite Purchasing Managers' Index (PMI), compiled by S&P Global, fell to 48.3 from June's 50.6, below analysts' expectations for a reading of 50.3.

The indicator was below the 50 level that marks growth in activity for the first time since January.


"This is a bad start to the third quarter," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. "Our GDP (forecast) for the third quarter... (now) points to negative growth."

The composite PMI index tracks the services and manufacturing sectors, which together account for more than two-thirds of Germany's economy.

The downturn was led by the manufacturing sector, whose PMI dropped to 38.8 from 40.6 amid a rapidly declining demand for goods, the survey showed.

A slowdown in services sector growth that started last month extended into July, weighed down by a renewed fall in flows of new work. The sector reading fell to 52.0 from 54.1.

A shrinking pipeline of outstanding business contributed to a weakening of firms' expectations of future activity, which turned negative as pessimists outnumbered optimists for the first time since December.

While overall price pressures continued to ease during July, there were contrasting trends at the sector level.

"Hopes for a rapid slowdown in inflation have taken a hit with these latest findings, given that the surge of input and output prices in the vast services sector has even gathered some pace in July," de la Rubia said.