Service Sector Slowdown Signals Underlying Economic Concerns in Germany
Preliminary data released by the Federal Statistical Office (Destatis) reveals a concerning deceleration in Germany’s service sector, raising questions about the robustness of the nation’s economic recovery. While nominal turnover in the sector (excluding financial and insurance services) registered a slight increase of 0.1% in October 2025 compared to September, real turnover – adjusted for inflation – contracted by 0.4%. This modest uptick in nominal terms masks a more worrying trend of declining purchasing power, signalling potential vulnerabilities within the German economy.
Looking back to October 2024, the sector did show a marked improvement with a real increase of 0.3% and a substantial nominal rise of 2.3%. However, the current contraction signals a significant shift from this earlier momentum and highlights the challenges facing businesses across various key sub-sectors.
The most significant drag on overall performance in October 2025 came from the Information and Communication sector, witnessing a substantial real turnover decrease of 2.3% compared to the previous month. Coupled with a 1.3% decline in Transport and Logistics and a slight 0.4% downturn in Real Estate activities, the data presents a picture of softening demand in crucial areas underpinning Germany’s economic infrastructure. These falls are likely to reverberate through downstream industries, potentially impacting employment and investment.
While some sectors, namely independent, scientific and technical services and ‘other’ economic services – encompassing activities like rental of movable goods and labour recruitment – showed positive growth of 0.3% and 1.9% respectively, these gains appear insufficient to offset the broader downturn. The resilience observed in these niche areas could indicate a shift towards more specialized and project-based services, however, the overall picture remains subdued.
Analysts suggest several factors are contributing to this slowdown. Lingering effects of global supply chain disruptions, increased energy costs and a cooling of post-pandemic pent-up demand are all cited as potential drivers. However, the depth of the decline in the Information and Communication sector, a critical engine for innovation and digital transformation, has drawn particular scrutiny. Concerns are being raised about the government’s long-term digital strategy and whether adequate investment is being channeled to support the competitiveness of German tech firms.
The contraction in the real estate sector also mirrors broader anxieties about the sustainability of the housing market and the impact of rising interest rates. The data underscores the need for a careful reassessment of government policy and targeted interventions to stimulate growth and bolster consumer confidence within the vital German service sector. The current trend demands close monitoring and a proactive policy response to mitigate potential risks for the wider economy.
