Market Analysis

In September, German business activity contracted at its fastest pace in seven months, according to a survey released on Monday, suggesting that Europe's largest economy may have slipped into recession.

The HCOB German flash composite Purchasing Managers' Index (PMI), compiled by S&P Global, dropped to 47.2 from 48.4 in August, falling short of the 48.2 forecast in a Reuters poll. A PMI reading below 50 indicates contraction.

The survey indicates that Germany's economy, which shrank by 0.1% in the second quarter, continued its decline into the third quarter. Typically, a recession is defined as two consecutive quarters of economic contraction.

"A technical recession appears inevitable," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, predicting a 0.2% contraction for the third quarter.

The composite index monitors activity in the services and manufacturing sectors, which collectively make up over two-thirds of the euro zone’s largest economy.

In the services sector, the index dropped to 50.6 in September from 51.2 in August. Reuters analysts had anticipated a smaller decline, predicting the index would fall to 51.0.

The manufacturing sector, meanwhile, remained entrenched in a downturn, with the index plunging to 40.3 from 42.4 in August, well below the expected 42.3.

"The manufacturing sector's downturn has worsened, dashing hopes for an early recovery," de la Rubia noted.

He also highlighted that the manufacturing slump was beginning to impact Germany's services sector, where growth has slowed for four consecutive months.

Paraphrasing text from "Reuters" all rights reserved by the original author.