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Germany’s Services Sector Nears Recovery in July

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Germany’s services sector showed signs of stabilising in July as business activity contracted at a much slower pace and demand began to recover. The HCOB Germany Services Purchasing Managers’ Index (PMI) rose to 49.8 from 48.6 in June, its highest reading in recent months and just below the 50-point mark that separates contraction from growth.

The survey showed new business increased for the first time in five months, signalling improving demand, while employment declined at the slowest pace since job cuts began earlier this year. Export orders continued to fall but at the weakest rate in five months, suggesting external demand is also stabilising.

Despite the improvement, rising input costs and higher prices charged by businesses highlighted persistent inflationary pressures. Analysts warned that uncertainty surrounding the Iran war, volatile energy prices, and supply chain disruptions continue to pose risks, although Germany’s broader economy returned to growth in July as stronger manufacturing activity lifted the composite output index above the expansion threshold.

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Euro Zone Business Activity Rebounds in July

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Business activity across the euro zone accelerated to an eight-month high in July, driven by a recovery in the services sector and continued strength in manufacturing. The S&P Global Euro Zone Composite PMI rose to 52.0 from 50.0 in June, moving back into expansion territory for the first time since March, while the Services PMI climbed to a five-month high of 51.7.

The improvement was broad-based, with Germany returning to growth and stronger performances recorded in Italy and Spain. France remained the only major economy still in contraction, although at a slower pace. New orders increased at their fastest rate since November, employment stabilised after six months of declines, and business confidence improved despite ongoing geopolitical uncertainty.

Analysts said the conflict in the Middle East, particularly the Iran war, continues to cloud the economic outlook. While inflation in input and output costs eased, euro zone inflation edged up to 2.9% in July, reinforcing expectations that the European Central Bank could raise interest rates again in September, potentially weighing on consumer spending and business demand.

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Euro Zone Factory Output Hits 4½-Year High Despite Weak Demand

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Factory output across the euro zone grew at its fastest pace in nearly four and a half years in July, according to the latest S&P Global Manufacturing PMI survey. The headline manufacturing PMI rose to 51.9 from 51.4 in June, while the output index climbed to its highest level since March 2022, signalling continued expansion in the region’s manufacturing sector.

Despite the strong production figures, demand remained weak as new orders increased only slightly and export orders declined in several major economies, including France, Spain, Italy and Austria. Economists said manufacturers are relying heavily on clearing existing order backlogs rather than benefiting from fresh business, raising concerns about the sustainability of the recovery.

Manufacturers also continued to reduce jobs as they remained cautious about future demand. While input cost inflation eased and factory gate price increases slowed, supply chain disruptions linked to the Middle East conflict continued to affect the sector. Business confidence improved modestly but remained below its long-term average, reflecting ongoing uncertainty across the euro zone economy.

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Thousands of Audi Workers Protest Over Possible Neckarsulm Plant Closure

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Thousands of Audi employees gathered in Neckarsulm, Germany, to protest against the possible closure of the automaker’s manufacturing plant as parent company Volkswagen continues a major restructuring programme. According to the works council, around 6,000 workers took part in the demonstration, expressing concerns over job security and the future of the facility.

Volkswagen has warned that the Neckarsulm plant could face closure after 2030 if no long-term solution is found. The site employs around 15,000 people and manufactures several Audi models, including the A5, A6, A8 and the all-electric e-tron GT. Company officials are exploring alternatives, including new production opportunities, but no final decision has been made.

The protest comes as Germany’s automotive industry faces mounting pressure from rising production costs, growing competition from Chinese manufacturers and U.S. tariffs. Local leaders warned that shutting the Neckarsulm plant would have serious economic consequences for the region, while upcoming negotiations between Volkswagen management and labour representatives are expected to play a key role in determining the factory’s future.

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German Economy Shows Resilience in Second Quarter

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Germany’s economy likely recorded modest growth in the second quarter of 2026 despite challenges from the Middle East conflict, according to the Bundesbank. The central bank said strong industrial activity, steady exports, and resilient consumer spending helped offset the impact of higher energy and commodity prices.

The Bundesbank noted that Germany’s industrial sector benefited from robust foreign demand, while consumers continued spending despite rising energy costs and reduced purchasing power. Temporary factors, including supply shortages affecting some Asian competitors and early purchasing by customers anticipating future disruptions, also supported economic activity.

Looking ahead, the Bundesbank said economic pressures could ease if the conflict in the Middle East does not escalate further, though it warned that the war will likely continue to weigh on growth and inflation. The bank currently forecasts Germany’s economy to expand by 0.5% in 2026, with growth expected to improve to 0.8% next year.

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BYD Nears Decision on Second European Manufacturing Plant

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Chinese electric vehicle giant BYD is close to finalising plans for a second manufacturing facility in Europe as it accelerates its regional expansion. Speaking at the Reuters Automotive Europe conference in Frankfurt, BYD’s special adviser for Europe, Alfredo Altavilla, said a decision is expected soon, with Spain and France emerging as the leading candidates. The company is reportedly exploring the acquisition of an existing automobile factory rather than building a new facility from scratch.

The proposed investment would become BYD’s second European production site after its Hungary plant, where manufacturing is scheduled to begin later this year. The move comes as the European Union promotes greater local manufacturing through “Made in Europe” initiatives, while traditional automakers continue to grapple with overcapacity, rising costs, and increased competition from Chinese electric vehicle manufacturers.

BYD’s expansion follows strong sales growth in Europe, where deliveries surged 270% last year and more than doubled during the first five months of 2026. Altavilla argued that European automakers should focus on improving competitiveness instead of trying to resist Chinese rivals, describing the industry’s restructuring efforts as a necessary wake-up call. He also dismissed suggestions that Chinese manufacturers would be willing to share their latest technology through minority joint ventures.

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Volkswagen’s Unique Ownership Structure Faces Fresh Scrutiny Amid Restructuring Plans

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Volkswagen’s complex ownership and governance structure has come under renewed scrutiny as the German automaker prepares a major restructuring that could include plant closures and nearly 100,000 job cuts. Labour unions have vowed strong resistance, while the company’s unique legal framework gives workers and the German state of Lower Saxony significant influence over key decisions.

The influence stems from the Volkswagen Law, introduced in 1960, which was designed to protect the company from outside control. The law grants Lower Saxony, which holds a 20% voting stake, the power to block major shareholder decisions, while worker representatives on Volkswagen’s 20-member supervisory board can effectively veto significant factory-related changes, making large-scale restructuring more difficult.

Volkswagen’s ownership structure further complicates governance. Porsche SE, the investment vehicle of the Porsche and Piech families, controls a majority of voting rights despite owning less than a third of the company’s total equity. Investors have long criticised this arrangement, arguing it limits corporate governance reforms and contributes to uncertainty as Volkswagen faces falling share prices, leadership challenges and growing pressure to adapt to a changing automotive market.

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France’s Private Sector Slowdown Eases in June

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France’s private sector remained in contraction during June, but the pace of decline eased significantly, according to the latest S&P Global Flash PMI survey. The Composite Output Index rose to 47.6 from 44.9 in May, indicating that business activity is still shrinking but showing signs of stabilization. Economists viewed the improvement as a positive signal after France’s first-quarter GDP was revised to reflect an economic contraction.

The manufacturing sector showed encouraging progress, with the Manufacturing PMI climbing to 50.7, returning to growth territory. Manufacturing output also improved, while the services sector remained weak but contracted at a slower rate than in previous months. The Services PMI rose to 47.4, marking its highest level in three months.

Despite the improvement, demand remained subdued as new orders declined for a seventh consecutive month and export orders continued to fall sharply. Employment levels stabilized after a significant drop in May, while business confidence improved for the first time since January. Cooling cost pressures and softer pricing trends suggested easing inflation, although uncertainties surrounding shipping routes through the Strait of Hormuz continue to pose risks to the outlook.

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German Business Activity Falls to 18-Month Low as Services Sector Weakens

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Germany’s private sector activity contracted at its fastest pace in 18 months during June, according to the latest S&P Global survey. The Composite Flash Purchasing Managers’ Index (PMI) dropped to 48.0 from 48.8 in May, falling short of market expectations and remaining below the 50-point mark that separates growth from contraction.

The decline was driven mainly by the services sector, where the PMI fell to 46.8, its lowest level since November 2022. Business activity and new orders in the sector weakened further, while overall new business across the economy declined for a fourth consecutive month, marking the sharpest fall since December 2024.

Despite the slowdown, the survey highlighted easing inflationary pressures. Input costs rose at the slowest pace in four months, while output price inflation softened. However, business confidence for the next 12 months weakened slightly and remained below long-term averages, raising concerns that Germany’s economy may have slipped back into contraction during the second quarter.

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BMW Prepares Staff Talks After Profit Warning Amid China Slowdown and Rising Costs

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German luxury carmaker BMW is preparing discussions with employee representatives after issuing its latest profit warning and announcing plans to accelerate efficiency measures. The company cited continued weakness in the Chinese market and rising costs linked to the conflict involving Iran as key reasons for the weaker outlook.

Industry analysts believe BMW could consider reducing jobs in Europe while increasing efforts to localise production in North America and China. Although the company has not announced large-scale layoffs like some of its competitors, its workforce declined slightly in 2025 and is expected to shrink further this year.

BMW’s shares fell to their lowest level in nearly six years following the announcement. The automaker expects its global workforce to decrease by up to 5% by the end of 2026, potentially affecting around 7,700 positions. However, the company said the reduction will be achieved through natural attrition rather than compulsory job cuts.

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