German services downturn eases in July as demand picks up, PMI shows

BERLIN, Aug 5 (Reuters) - Germany's service sector contracted only marginally in July as demand picked up slightly and new business rose for the first time in five months, a business survey showed on Wednesday.

The final HCOB Germany services Purchasing Managers' Index, compiled by S&P Global, rose to 49.8 in July from 48.6 the month before, coming in slightly above an initial reading of 49.6. 

A reading below 50.0 indicates contraction, and the closer it comes to that figure, the slower the rate of contraction.

"Business conditions have steadied across the service sector, with not only business activity coming close to stabilising in July, but employment too," said Phil Smith, economics associate director at S&P Global Market Intelligence.

Workforce numbers slipped only slightly, with the rate of job losses easing for a third straight month and the weakest since the current run of cuts began at the start of the year.

New business edged back into growth after four months of decline - the first signs of a pick-up in demand since the outbreak of the Middle East war in late February, said Smith. 

Export orders still fell, but the drop was only marginal and the weakest in the current five-month sequence. 

Price pressures intensified at the start of the third quarter: Input cost inflation rebounded from June's seven-month low, while output charge inflation accelerated for the first time in three months to its highest since April.

Smith said that it was hard to predict the direction of inflation in the coming months due to volatility in global energy prices and supply chain uncertainties from the Iran war. 

"Based on its recent direction of travel, the service sector looked well positioned to return to growth in the third quarter, but the recent flare-ups of hostilities in the Middle East show there are still substantial risks to the outlook," said Smith.        

Germany's composite output index rose to 51.3 from 49.5, returning to growth for the first time since March, with the upturn driven by a marked rise in manufacturing production.

(Reporting by Miranda Murray; Editing by Toby Chopra)