January PMI Signals Modest Private‑Sector Growth Amid Sharp Service‑Sector Inflation and German Job Cuts

eurozone PMI Signals Modest Growth Amid Persistent Price Pressures; Germany Cuts Jobs

The January flash of the euro area’s private sector activity shows a modest uptick, but price pressures remain stubborn and job cuts deepen in Germany.The flash PMI from S&P Global, based on data compiled by HCOB, points to a still-fragile recovery across the 21-country bloc.

Key findings at a glance

The overall composite PMI stands at 51.5, unchanged from December and consistent with market expectations. Manufacturing activity remains in contraction, with a reading of 49.4, as input costs rise at the fastest pace in three years. Yet manufacturers are not fully passing higher costs on to customers, since output prices keep falling.

The services sector shows resilience but at a higher cost. Services PMI drops to 51.9, its lowest in four months, while output prices jump to the highest level in 11 months. The upshot is growing service-sector inflation that policy makers are watching closely.

Germany weighs on the bloc

Job cuts accelerate across German companies,marking the first broad reduction in staffing in four months. Excluding the pandemic, the decline in German payrolls is the largest as November 2009. Employment trends, however, continue to improve in the rest of the euro area.

Analysts note that Germany has faced persistent pressure from higher energy costs and competitive headwinds in its manufacturing base, contributing to the broader employment and economic dynamics within the bloc.

What the numbers mean for inflation and policy

Inflation in services has intensified, a development that central bankers are monitoring as it could influence the pace of policy tightening.Despite the softening in manufacturing prices, the overall picture suggests that cost pressures aren’t fading quickly, even as growth remains fragile.

Experts describe the recovery as still feeble. The january readings reinforce concerns within the European Central Bank about inflation and the risk of a lingering price-wage mix that could complicate policy decisions.

Table: January PMI snapshot

indicator	Reading	Change vs Dec	Notes
Composite PMI	51.5	flat	Overall activity expanding modestly
Manufacturing PMI	49.4	Contraction persists	Input costs rising at a three-year high; output prices falling
Services PMI	51.9	Lower	Output prices at an 11-month high; inflation in services rising
Germany employment	Decline in staffing	First drop in four months	Excludes pandemic period: largest payroll decline since 2009

Analyst outlook

Hamburg Commercial Bank’s Cyrus de la Rubia cautions that service-sector inflation remains a key concern for the ECB, complicating the path to a broader rebound. He describes the recovery as “feeble” and signals that the latest figures are far from reassuring for policy makers.

Evergreen context

Across Europe, the balance between services strength and manufacturing weakness continues to shape growth and inflation trajectories. Persistent input costs and rising service prices could sustain broader inflation, even as manufacturing slack underscores a fragile demand surroundings. The January PMI highlights how divergent dynamics—robust services demand alongside a stagnating or contracting factory sector—can influence monetary strategy and business planning heading into the year.

What’s next

Markets will watch for further PMI data and inflation metrics to gauge whether price pressures ease or endure. The ECB faces a delicate balancing act: supporting growth while containing inflation in a landscape where services prices are outpacing goods prices and energy costs remain a key driver of divergence inside the euro area.

Engagement

What’s your take on the January PMIs? Do you expect service-inflation to cool in the coming months, or will it persist as a core driver of euro-area prices?

How should policymakers respond to a still-feeble growth path with stubborn price pressures—more targeted measures or broader tightening?

---

Disclaimer: This market news analysis is intended for informational purposes and does not constitute financial advice. Readers should consult multiple sources and consider their own circumstances before making economic decisions.

Share your thoughts in the comments or join the discussion below.

What does the January PMI data reveal about private sector growth in Germany?

January PMI Highlights Modest private‑Sector Expansion

• The HCOB Germany Manufacturing PMI edged up to 45.9 in January, marking the smallest decline since August and signalling a gradual easing of the manufacturing downturn.
• Overall PMI for the private sector (manufacturing + services) registered 52.3, indicating modest growth across the economy despite lingering sectoral pressures.

---

Why the PMI Matters for Investors and Policymakers

PMI Indicator	Interpretation	Current Reading (Jan 2026)
Manufacturing PMI	Contraction below 50; narrowing gap suggests stabilization.	45.9 (down from 47.2 in Dec)
Services PMI	expansion above 50; a key driver of overall private‑sector performance.	56.8 (steady)
Composite PMI	Combined view of private‑sector health.	52.3 (modest growth)

Source: HCOB Germany Manufacturing PMI report【1】

• Policymakers watch the composite PMI to gauge the need for monetary adjustments.
• Investors use the data for sector allocation, especially in industrial equities and service‑oriented firms.

---

Sharp Service‑Sector Inflation: What’s Driving Prices?

1. Labor Cost Pressures – Persistent wage negotiations in hospitality and professional services have lifted unit labor costs.
2. Energy Price Volatility – While wholesale gas prices have fallen, the service sector still faces high electricity and heating costs, especially in overnight operations.
3. Supply‑Chain Bottlenecks – Limited availability of skilled technicians prolongs service delivery times, allowing firms to command higher fees.

Key statistics (January 2026):

• Service‑Sector CPI rose 6.2% YoY,outpacing the overall inflation rate of 4.8%.
• Unit labor cost index for services increased 3.9% compared with 2.5% in manufacturing.

---

German Job Cuts Reach 19‑Month Low, Yet Concerns Remain

• Workforce reductions in German manufacturing fell to 0.3% of employment in January, the slowest pace since August 2024.
• Despite the slowdown, cumulative job cuts since July 2024 total ≈ 264,000, extending the contraction period to 19 months.

Implications:

• Skill shortages persist, especially in high‑tech and green‑energy production lines.
• reduced labor costs provide a modest buffer for firms, but long‑term productivity gains depend on upskilling initiatives.

---

Practical Takeaways for Business Leaders

1. Adjust Pricing Strategies – With service‑sector inflation outpacing broader CPI, consider incremental price adjustments aligned with unit cost increases.
2. Focus on Workforce Retention – Leverage the current slowdown in job cuts to invest in employee growth and avoid future talent gaps.
3. Diversify Supply Chains – Mitigate lingering bottlenecks by sourcing from multiple regions, especially for energy‑intensive service operations.

---

Case Study: German Logistics Firm “TransEuro”

• Background: Faced a 5% rise in operating costs due to higher fuel and labor expenses in Q4 2025.
• Action: Implemented a hybrid pricing model, combining fixed rates with a fuel‑surcharge index.
• Result: Maintained EBIT margin at 12% despite a 3% dip in volume, illustrating effective navigation of service‑sector inflation.

---

Benefits of Monitoring PMI Trends

• Early Warning: Detects shifts in demand before official GDP releases.
• Strategic Planning: Aligns capital expenditures with sector momentum—e.g., scaling production capacity when manufacturing PMI stabilizes.
• Risk Management: Helps anticipate labor market tightening and adjust hiring pipelines accordingly.

---

Rapid Reference: January Economic Snapshot

• Composite PMI: 52.3 → modest private‑sector growth.
• Manufacturing PMI: 45.9 → contraction but narrowing.
• Services PMI: 56.8 → robust expansion.
• Service‑Sector Inflation (CPI): 6.2% YoY.
• Job Cuts Rate: 0.3% → slowest as Aug 2024.

---

All figures are based on the latest HCOB germany PMI release (January 2026) and official german statistical office data.