Germany services contraction eases in June as cost pressures cool, PMI shows

By Miranda Murray

BERLIN, July 3 (Reuters) - Germany's services sector contracted for a third straight month in June as weaker demand, dragged down by higher prices and lower market confidence, continued to weigh on activity, a survey showed on Friday.

The final HCOB Germany Services Purchasing Managers' Index, compiled by S&P Global, rose to 48.6 in June from 48.1 in May, nearly two points higher than an initial reading of 46.8. 

A reading below 50.0 indicates contraction, and the further it falls below that number, the faster the rate of contraction.

June's reading, which is the highest since the downturn began in April, thus indicates only a moderate rate of decline.

"The service sector continues to suffer from the generally more challenging economic backdrop seen since the start of the Middle East war," said Phil Smith, economics associate director at S&P Global Market Intelligence.

New business fell for a fourth straight month and at a faster pace than in May, as firms cited difficult economic conditions, tighter financial conditions and weak confidence in the domestic market. New work from abroad also declined markedly.

A lack of incoming orders also led to another fall in backlogs of work, with the pace of depletion accelerating to its fastest since August last year. 

"A steep and accelerated reduction in backlogs of work points to low capacity pressures in the sector and suggests there will be little appetite for hiring in the coming months," said Smith.

Employment fell for a sixth consecutive month in June, though the decline was only marginal and the weakest in that run.           

Input price inflation slowed sharply to its lowest since November last year, helped in part by lower fuel prices.

Smith said the subsiding cost pressures were encouraging but added that the dynamics for the coming months are unclear as developments in the Middle East remain unpredictable.

The final S&P Global Germany composite PMI, which includes services as well as manufacturing, rose to 49.5 in June from 48.8 the month before. 

(Reporting by Miranda Murray; Editing by Toby Chopra)