German services sector growth hits four-month high in February

Summary

Germany’s services sector saw a significant acceleration in activity during February, reaching its highest level since October 2025. While stronger domestic demand and a surge in exports drove the expansion, the sector is grappling with the fastest rate of job cuts since the 2020 pandemic as firms struggle with high staff costs.

BERLIN, March 4, 2026 — Business activity in Germany’s service sector grew at a robust pace in February, according to the latest S&P Global survey data. The findings, compiled shortly before the recent military escalations in the Middle East, suggest the Eurozone’s largest economy was gaining significant momentum in early 2026.

The final HCOB Germany Services PMI Business Activity Index climbed to 53.5 in February, up from 52.4 in January. Any reading above 50.0 indicates expansion, and this four-month high represents a growth rate currently trending above the long-term historical average.

Export demand surges while hiring stalls

The primary engine of this growth was a fifth consecutive monthly rise in new business inflows. Notably, new export business saw its strongest growth since May 2023, suggesting that German service providers—ranging from IT to finance and logistics—are finding renewed success in international markets.

However, this “robust growth” has not translated into a healthier labor market. Employment in the sector fell for the second month in a row, with the rate of job losses hitting its highest point since June 2020.

“Companies are trying to cope with the improved business situation with fewer employees,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. He noted that firms appear to be waiting for more economic certainty before they resume hiring, especially as they face ongoing pressure from high staff wages.

Inflation pressures and composite outlook

While cost pressures remain a concern for German businesses, there were signs of relief as input price inflation eased slightly from the peak seen in January. While firms are still passing some of these costs on to consumers, they are doing so at a slower rate than in previous months.

The broader German Composite PMI—which combines both the manufacturing and services sectors—rose to 53.2 from 52.1. This indicates that despite the struggles in manufacturing, the strength of the services sector is pulling the overall private economy into a stronger expansionary phase.

Why this matters

• Pre-conflict baseline: This data provides a critical “snapshot” of the German economy’s strength immediately before the March geopolitical shocks. It shows a resilient domestic economy that was finally starting to fire on all cylinders.
• The “jobless” expansion: The disconnect between high growth and high layoffs is a red flag. If firms continue to cut staff while demand rises, it could lead to service quality issues or a eventual bottleneck in growth.
• Export reliance: The return of strong export demand is vital for Germany’s recovery, but this remains the most vulnerable metric given the current disruptions to global trade routes in the Gulf.

FAQs

Q1. What was the German services PMI reading for February?

The index hit 53.5, a four-month high and well above the 50.0 neutral mark.

Q2. Is the German economy growing?

Yes, the services sector is seeing robust growth, and the composite index (which includes manufacturing) shows the private sector as a whole is expanding.

Q3. Why are German companies cutting jobs if business is good?

Firms cited rising staff costs and a strategy of non-replacement for departing employees. Economists suggest businesses are waiting for more geopolitical and economic “certainty” before hiring again.

Q4. Does this data account for the current conflict in the Middle East?

No. The survey was compiled before the U.S. and Israel launched attacks on Iran. Future PMI readings will likely reflect the impact of those events on business confidence and costs.