Activity in Germany's services sector slowed to its weakest pace in almost three years in December and the volume of new business shrank for the first time since March 2005, a survey showed on Friday.
The NTC Research survey of services ranging from banking to freight transport also showed companies' costs rose at the fastest pace in more than seven years in December.
The business activity gauge in the services Purchasing Managers' Index (PMI), based on a survey of around 500 firms, fell to 51.2 from November's 53.1, NTC said. The new business measure dropped to 48.9 from 52.3.
December's reading for the headline index held above the 50.0 level that separates expansion from contraction but below the mid-range forecast of 52.4 in a Reuters poll.
"Following on from the manufacturing PMI report, the latest services data suggest that the slower trend in demand growth is being experienced across the German economy as client confidence is hit by tight credit conditions and rising commodity, especially energy, prices," NTC economist Rob Dobson said.
"The other forward-looking indicators from the services report, backlogs of work and business expectations, also provide no real evidence of any imminent recovery for the sector."
NTC's gauge of business expectations edged back above 50 in December after negative readings the previous two months but a measure of work backlogs fell to 48.6, the first contraction in three months, from 50.4.
Costs surge, demand slows
Costs surged to an index level of 62.8 in December, showing the sharpest inflation since October 2000, from November's 61.2. Companies also raised their charges at a faster pace although these increases remained relatively modest in December, at an index level of 54.2 compared with 52.7 in November.
A separate NTC survey showed on Wednesday that German manufacturing growth weakened slightly in December and the quarterly average for the final three months of 2007 fell to the lowest in more than two years.
Both NTC reports add to evidence growth in Europe's biggest economy is set to slow markedly this year after expansion of around 2.5 per cent in 2007.
The Ifo institute's gauge of German business confidence showed morale deteriorated to its worst in almost two years in December. Economy Minister Michael Glos said this week the government was planning to trim its growth forecast for this year to "just under 2 per cent".
NTC said the latest services PMI showed financial services posted the sharpest contraction in new business in December.
Concern about tight credit market conditions spurred many customers to reduce or postpone non-essential expenditure.
However, a gauge of employment continued to show strength last month and was little changed from November at 55.0, well above the long-term average of 50.5.
"Conditions in the labour market are still relatively strong entering 2008," Dobson said. (Reuters)
German services activity weakest in almost 3 years