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Germany's Private-Sector Activity Shrinks Again in May
(MENAFN) Germany's private sector shrank for a second straight month in May, stoking fears that the spillover from the Iran war is inflicting mounting damage on Europe's largest economy.
The S&P Global Composite Purchasing Managers' Index (PMI) for Germany edged up to 48.6 in May from 48.4 in April, yet held below the critical 50-point threshold dividing growth from contraction — falling short of the modest recovery analysts had anticipated.
Both manufacturing and services remained in negative territory, battered by sluggish demand and stubbornly elevated inflation.
"The German economy is on course to contract in the second quarter," Phil Smith, an economist at S&P Global Market Intelligence, said in a statement.
"In manufacturing, the boost that we saw from efforts to build stocks and get ahead of price increases and supply shortages appears to be fizzling out," Smith added.
Germany had opened 2026 on a stronger-than-expected footing, but that momentum has since eroded as surging energy costs, strained supply chains, and war-driven inflationary pressures cloud the outlook. The German government has already slashed its 2026 growth forecast by half, to just 0.5%.
The data lands as economic anxiety spreads across the eurozone, with France's PMI tumbling to its weakest reading in over five years. The prospect of higher borrowing costs threatens to pile further strain on the region, with the European Central Bank weighing a potential rate increase next month. Bundesbank President Joachim Nagel signalled this week that policymakers may "have to do something" in June should the energy shock stemming from the Iran conflict prove lasting.
Euro area inflation hit 3% in April.
Smith noted that while input cost inflation in Germany continued to accelerate, a deceleration in output price increases across both sectors indicated that firms were absorbing a growing share of rising costs themselves.
"This suggests some containment of inflationary pressures, but it also hints at an increased squeeze on company margins," he said.
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