German economy faces recession: service sector weakens
Purchasing managers' index at a worrying 44.7 points in July

The German economy is showing signs of imminent contraction. Current survey results among purchasing managers indicate that both industry and the service sector are in decline this year. This survey, conducted by financial services provider S&P Global, is based on responses from 800 private sector companies and paints a bleak picture not only for Germany but also for the entire European Union.
A key indicator of economic health is the purchasing managers' index (EMI). A value above 50 points indicates growth, while values below 50 points indicate contraction. For Germany, this index stood at a worrying 44.7 points in July, a significant decline from the previous month. Particularly alarming is the drastic decline in the services sector, which fell from 52.3 points in June to 47.3 points in July.
Experts expressed their concern about this development. Thomas Gitzel, chief economist at VP Bank, stressed that the service sector was previously seen as a beacon of hope, but is now showing signs of weakness. The industrial index, which stands at 39.1 points, also remains far from the growth threshold. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank (HCOB), added that hopes that service companies could save the German economy have now faded.
The eurozone is also showing signs of a downturn. Purchasing managers' indexes for industry and services are both below the 50-point mark, indicating a recession. This is the fourth consecutive decline and the lowest level since November 2020.
Despite the gloomy outlook, the EU Commission had still raised its growth forecast for the eurozone to 1.0 percent in May. However, many economic experts had already predicted a recession for Germany. The ifo Institute, for example, forecast a 0.4 percent decline in gross domestic product (GDP) for 2023.
These economic developments could also have an impact on the monetary policy of the European Central Bank (ECB). If the economy cools down across the EU, the series of interest rate hikes in the euro area could pause. Jörg Krämer, chief economist at Commerzbank, believes that the ECB will lower its growth forecast and probably not raise key interest rates further in September.
