Germany's factories have fallen back into contraction while services cooled, leaving private‑sector growth fragile. The HCOB preliminary composite Purchasing Managers' Index, compiled by S&P Global, slipped in November and signalled only marginal overall expansion. The Bundesbank and national institutions said the slowdown has weighed on labour markets and corporate finances and been worsened by higher energy costs, leaving growth dependent on energy markets and geopolitical developments.

PMIs point to abrupt loss of momentum The HCOB preliminary German flash composite Purchasing Managers' Index, compiled by S&P Global, slipped in November, signalling only marginal overall expansion. Manufacturing moved back into contraction while services cooled, both outcomes falling short of market expectations. The split matters. Manufacturing’s slide was driven by a fall in new orders and weaker exports; S&P Global’s survey showed backlogs of work shrinking and employment in the factory sector easing. Services, which had been carrying much of the recent growth, also lost pace. Together these sectors account for a large share of Germany’s economy, so their joint slowdown trims the scope for near‑term expansion. Labour market and corporate stress Official Bundesbank data show the labour market has been drifting sideways: average employment was 46.0 million people in the second quarter, virtually unchanged from the prior quarter and down about 7,000 from the winter months. The Bundesbank noted sectoral shifts — industrial employment weaker, while health and social services continued to add staff. Unemployment saw a moderate uptick and leading indicators do not suggest a broad near‑term improvement. Those trends reflect weak consumer demand in parts of the economy, higher operating costs and persistent uncertainty, which have weighed on corporate finances and hiring plans. Energy, geopolitics and supply strains Policymakers and firms point to external shocks and higher energy costs as a key drag on activity. Key pressures reported include: - Higher energy and raw material prices squeezing profit margins and delaying investment plans. - Renewed supply‑chain frictions in some sectors. - Weather‑related losses that dented construction output over winter. - Weak retail activity and deteriorating consumer sentiment, which hollow out domestic demand. The Bundesbank highlighted that industrial losses are concentrated in energy‑intensive intermediate goods producers and large sub‑sectors such as motor vehicle production and electrical engineering, leaving some firms particularly burdened by rising costs and weak demand.

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The Bundesbank notes average employment stood at 46.0 million in the second quarter — roughly unchanged but about 7,000 lower than in the winter months — underscoring how fragile the recovery remains.

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