Germany’s service sector gathered fresh momentum in February, with business activity expanding at the fastest pace in four months, according to the latest HCOB PMI survey. Stronger demand helped lift overall performance, as companies reported winning new clients and securing large contracts.
The HCOB Germany Services PMI Business Activity Index rose to 53.5 in February, up from 52.4 in January. Any reading above 50 indicates growth. February’s figure not only signaled continued expansion but also marked the strongest improvement since October, with growth running above the long-term average.
Demand conditions improved notably. New business increased for the fifth consecutive month, with growth reaching a three-month high. Export demand was particularly strong, recording its fastest rise since May 2023. This helped push backlogs of work slightly higher — only the third such increase in more than two and a half years.
Despite rising activity and a small build-up in outstanding work, employment in the service sector declined for the second straight month. The pace of job losses was the fastest since June 2020. Companies cited layoffs, decisions not to replace departing staff, and rising wage costs as key reasons for reducing headcount.
Cost pressures remained elevated. Input prices continued to rise sharply, driven mainly by higher wages, as well as increased energy, transport, and supplier costs. However, the rate of cost inflation eased slightly from January’s recent peak. Businesses continued to raise their selling prices, though less aggressively than at the start of the year.
Looking ahead, service providers remain generally optimistic about the year ahead, supported by stronger order inflows, hopes of a broader economic recovery, and growing use of AI.
Meanwhile, the HCOB Germany Composite PMI Output Index climbed to 53.2 in February, up from 52.1 in January, reflecting stronger growth across both manufacturing and services.