German business activity fell for the third consecutive month in September due to a sustained decline in demand for goods and services, pointing to a "deep" economic contraction in the quarter, a preliminary survey showed on Friday.

The HCOB German Flash Composite Purchasing Managers' Index (PMI), compiled by S&P Global, rose to 46.2 in September from August's 44.6, but came in below the 47.2 forecasts by economists.

The indicator was below the 50 level, pointing to a contraction in business activity.

The composite PMI index tracks the services and manufacturing sectors, which together account for more than two-thirds of the German economy, Europe's biggest.

"The HCOB composite PMI confirms our view that Germany has entered once again into contraction during the current quarter," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. He added that a "rather deep" 1.0% contraction on the quarter is forecast.

Business activity in the services sector contracted for the second month in a row, although the rate of contraction eased noticeably. The sector reading rose to 49.8 from 47.3 in August, but remained below 50.

The manufacturing PMI rose slightly to 39.8 from 39.1 in August but remained deep in contraction territory, the survey showed.

"It is no secret that the German manufacturing sector has been going through the wringer lately," de la Rubia said.

Businesses' expectations of future activity, meanwhile, sank to the lowest since November last year, with pessimists once again outnumbering optimists. Sentiment weakened in both monitored sectors, the survey showed. (Reporting by Maria Martinez; Editing by Toby Chopra)