- Demand for services decreased for the second consecutive month in October.
- New orders fell at the sharpest pace in nine months.
- Employment across the service sector stagnated.
- Input prices in the services sector continued to rise significantly, albeit at a slower pace than the series average.
- However, output prices in the service sector as a whole have been on the rise, offsetting the decline in prices in the manufacturing sector as a whole.
- Although business confidence weakened, it was still stronger than that of the manufacturing industry as a whole.
Germany's private sector faces continued contraction
Germany, once the eurozone's economic powerhouse, continued to face challenges. HCOB composite PMI rose from 47.5 in September to 48.4 in October. There were signs of improvement in the services sector, with the HCOB services PMI rising from 50.6 in September to 51.4 in October.
ECB interest rate decisions still rely on data
PMI figures may temper expectations of deep interest rate cuts, but sustained price increases in the services sector could still fuel inflationary pressures. The upward trend in prices in the service sector may cause domestic inflationary pressures. However, the data continues to support the view that rates will be cut by 25 basis points (bp) in December.
Expert views on the euro area services sector and the ECB interest rate path
Commenting on the PMI data, Dr Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:
“The latest figures come as an unwelcome surprise for the European Central Bank (ECB). Inflation in the services sector is likely to remain high, as costs and selling prices rose more rapidly in October than in the previous month. , due to persistent wage pressures, which are particularly impacting service providers.”
Dr. Cyrus de la Rubia concluded:
“All of this supports the idea that the ECB is likely to cut key interest rates by just 25 basis points in December, rather than the 50 basis points that some have suggested.”
