German business activity has shown a promising return to growth in June, driven by a recovering manufacturing sector. This positive shift, indicated by the HCOB German flash composite PMI, offers a cautious sense of optimism for Europe’s largest economy, which has been grappling with potential contraction.
Germany’s economic rebound: A closer look
Germany’s business activity has rebounded in June, with the HCOB German flash composite PMI output index rising to 50.4 from 48.5 in May. This figure surpassed analysts’ forecasts of 49.0, signalling a significant improvement. The composite PMI tracks both the services and manufacturing sectors, which collectively represent over two-thirds of the eurozone’s largest economy.
Manufacturing sector leads the charge
The manufacturing sector has been a key driver of this resurgence, recording its strongest increase in new orders in over three years. The manufacturing index climbed to 49.0 in June from 48.3 the previous month, aligning with forecasts. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, noted, "It looks like Germany’s manufacturing sector might finally be turning a corner."
Services sector shows improvement despite contraction
While the services sector continued to contract in June, the pace of contraction significantly slowed. The sector’s index improved more than anticipated, rising to 49.4 from 47.1 in May. Analysts had predicted a more modest rise to 47.5, indicating a better-than-expected performance.
Key takeaways
- The HCOB German flash composite PMI output index rose to 50.4 in June from 48.5 in May, exceeding forecasts.
- The manufacturing sector saw its strongest increase in new orders in over three years, with its index rising to 49.0.
- The services sector’s contraction slowed considerably, with its index improving to 49.4.
- This data contributes to cautious optimism for Germany, which aims to avoid a third consecutive year of economic contraction.
Broader economic outlook
This positive data follows earlier revisions by four German economic institutes, which raised their forecasts for 2025, now expecting growth after two consecutive years of contraction. The return to growth in June, after a contraction in May, suggests a potential turning point for the German economy.
