German private-sector activity contracted for the second consecutive month, the latest sign that the war in Ukraine and broader geopolitical tensions are weighing on Europe's largest economy. The downturn spans both manufacturing and services, indicating that the recovery from last year's energy crisis is losing steam.
Why the contraction is spreading
Businesses across Germany are feeling the pressure. The war has kept energy costs high and disrupted supply chains, making it harder for companies to produce goods and deliver services. Export orders have weakened, and domestic demand is also softening. After a brief period of stability, the economy is now shrinking again.
The consecutive contraction means firms are likely to hold back on hiring and investment. Small and medium-sized enterprises, which form the backbone of the German economy, are especially vulnerable. The services sector, which had been a bright spot, is now also in decline, leaving few areas of growth.
What comes next
Policymakers in Berlin and at the European Central Bank are watching the data closely. With inflation still high, their room to cut interest rates or introduce new stimulus is limited. The next round of economic indicators will show whether this is a temporary soft patch or the start of a prolonged slump. For now, the war remains the dominant driver, and until the geopolitical situation eases, the outlook for the German private sector remains uncertain.
