German services activity shrinks again in May as energy costs weigh, PMI shows

BERLIN, June 3 (Reuters) - Germany's service sector contracted for a second straight month in May as subdued demand and high energy and other costs due to the war in the Middle East weighed on activity, a survey showed on Wednesday.

The final HCOB Germany Services Purchasing Managers' Index, compiled by S&P Global, rose to 48.1 in May from 46.9 in April, slightly above a preliminary reading of 47.8. 

May marks the first time in nearly a year that the sector has contracted for two months in a row, as indicated by a reading below the 50.0 breakeven line.

"Demand for services continues to be stifled by a squeeze on spending power from the increased cost of energy and heightened levels of uncertainty," said Phil Smith, economics associate director at S&P Global Market Intelligence.

However, he said, the easing rates of decline in overall business activity and new work offered hope that any downturn in the second quarter would be modest. 

Work backlogs shrank for a third month running, prompting another reduction in staffing levels. Employment fell for a fifth consecutive month, although the pace of job cuts eased.

Input cost inflation held close to April's three-year high, driven by energy, transport and wage costs, while output price inflation eased from April's 26-month high as some firms reported stronger competition and client resistance to higher prices.

Business expectations for the coming 12 months rebounded from April's more than 2-1/2-year low to their highest since February, which Smith said could reflect increased hopes of an end to the Middle East conflict as well as economic support through government policies.

"It's notable that confidence hasn't fully returned to the level seen before the war began" at the end of February, he added. 

The final S&P Global Germany composite PMI, which includes services as well as manufacturing, rose to 48.8 in May from 48.4 the month before.

(Reporting by Miranda Murray; Editing by Hugh Lawson)