FRANKFURT, July 4 - Following is the full text of the commentary on the /NTC German services index report for the German services sector in June.
SERVICES ECONOMY SEES MARGINAL CONTRACTION OF TOTAL ACTIVITY FOR THE SECOND SUCCESSIVE MONTH IN JUNE.
At a level of 49.6 in June, the seasonally adjusted Business Activity Index signalled contraction of the German services economy for the second month in succession. Moreover, the rate of contraction increased slightly as firms reported a sharp fall in incoming new business during the month.
BUSINESS LEVELS
Demand for services, as measured by the Incoming New Business Index, declined for the fifth consecutive month in June and the rate of contraction was only slightly slower than that seen in April - the fastest in two years.
It was widely reported by panellists that the sustained deterioration of the business climate in the services economy was symptomatic of worsening economic conditions throughout global economies.
In the domestic market, reports that demand for services had suffered as a result of the depressed state of German manufacturing and, in particular, construction sector were widespread.
With falling new demand for their services, panel firms reported being able to utilise spare capacity at their units in order to satisfy existing, incomplete contracts.
Levels of work outstanding were cut for the ninth consecutive month in June and the proportion of panellists reporting fewer backlogs was the greatest for three months.
As firms have continued to report the contraction of new business and the depletion of backlogs at their units in recent months, the rate at which they have taken on new staff has remained relatively subdued.
However, in June, the survey recorded the first contraction of service sector staffing levels in over two years as panel firms reported their efforts to restructure in light of the unfavourable economic conditions which they face.
COSTS AND PRICES
June saw further strong growth of average costs in the service sector.
The rate of input price inflation accelerated for the second month running, to its highest level since last November, as panel firms continued to report that the sustained high price of fuel and energy had kept strong upward pressure on costs.
However, despite the further strong growth of input prices, average charges levied by service sector firms continued to fall in June.
It was reported by a number of panellists that, in the current environment of strong competition and falling demand for services, there was little option but to reduce charges.
Nevertheless, some firms (particularly those in the Financial Intermediation sector) continued to report that they had been aided by the recent cut in European interest rates.