German private sector shrinks due to weak service sector data — Bloomberg

Germany's private sector unexpectedly contracted in May, Bloomberg reports. The decline was driven by the worst performance in the service sector in the last two and a half years, which offset improvements in the country's manufacturing.

The German composite index of business activity fell to 48.6 in May, the lowest value in the last five months, down from April's reading of 50.1. Bloomberg noted the 48.6 figure surprised economists, who had forecast only a modest decline to 50.3.

These developments have increased the likelihood of two more interest rate cuts by the European Central Bank this year. Meanwhile, Germany's short-term bond yields fell to 1.84% (down 0.03%), and the euro lost 0.3% against the dollar, falling to 1.1296.

As the agency notes, Germany's new government faces an increasingly difficult task to stimulate economic growth. According to official forecasts, the country's GDP growth will be zero in 2025. The first signs of economic recovery, subject to increased spending, are expected in 2026.