The HCOB Flash Germany Composite PMI dropped to 49.7 in April 2025 from 51.3 in March, falling short of expectations of 50.4 and signaling an unexpected contraction in private sector activity — the first decline in four months.
German private sector falls back into contraction
The data suggest that mounting concerns over trade tariffs, particularly those involving the U.S., coupled with ongoing global economic uncertainty, are starting to have a tangible impact on business sentiment and customer demand across Europe’s largest economy.
The services sector, which had previously acted as a pillar of resilience, slipped back into contraction territory with a reading of 48.8, down from 50.9. It marked the first decline in business activity since November and the steepest pace of contraction since February 2024, indicating waning domestic demand amid broader economic headwinds. Businesses cited reduced new work and growing caution among clients as contributing factors.
In manufacturing, the situation remained fragile. While the sector’s headline index edged lower to 48 from 48.3, underlying trends were mixed. Production increased for a second consecutive month, suggesting some stabilization in output, yet order books continued to weaken. Export demand remained sluggish, especially with U.S. trade policy still in flux, and concerns persist about supply chain reconfiguration as companies search for alternatives to U.S.-linked trade routes.
Employment in the private sector declined again
Employment in the private sector declined again, though the pace of job losses was the slowest in nearly a year, hinting that firms may be attempting to hold onto skilled workers amid hopes of a turnaround later in the year. Backlogs of work continued to fall, pointing to spare capacity and a lack of pressure on current production capabilities.
On the price front, inflationary pressures showed a modest uptick. Output prices rose, driven largely by a notable surge in manufacturing costs — the fastest pace of factory gate inflation in nearly two years — likely due to energy prices and input cost volatility stemming from trade disruptions.
Looking ahead, German firms reported the weakest growth expectations in six months, reflecting mounting concerns over global trade dynamics, persistent weakness in key export markets, and uncertainty around future policy responses. The data raise fresh doubts about the strength of the Eurozone’s economic rebound and increase the likelihood of further easing by the European Central Bank if business conditions continue to deteriorate.
