Eurozone manufacturing PMI hits a three-and-a-half-year high, Germany's rebound boosts overall figures, while France remains below the boom-bust line.
Eurozone economic activity expanded faster in February, with manufacturing returning to expansion and hitting a three-and-a-half-year high, injecting new momentum into the region’s economic recovery. Germany’s manufacturing performance became a key driver, while France’s economy continued to struggle at the edge of contraction, highlighting the divergence in recovery pace within the eurozone.
Data released by S&P Global show that the eurozone’s composite PMI rose from 51.3 in January to 51.9 in February, and the manufacturing PMI leapt from 49.5 to 50.8, the highest in 44 months, and the first time since last August above the 50 threshold. The services PMI edged up to 51.8, previous value was 51.6.
Germany’s economy improved significantly, with the composite PMI rising to a four-month high of 53.1, while the manufacturing PMI reached 50.7, entering expansion for the first time since June 2022. In contrast, France's composite PMI rose from 49.1 to 49.9, but still failed to break the 50 threshold, with weak manufacturing continuing to drag down overall performance.
Hamburg Commercial Bank Chief Analyst Cyrus de la Rubia stated that considering steady economic expansion and persistently high inflation in the services sector, the European Central Bank is expected to maintain key policy rates unchanged.
Eurozone Manufacturing Sees Turning Point Signals
Eurozone manufacturing shows multiple positive signals. The manufacturing output index rose to 52.1 in February, the highest since last August, and for the first time outpaced the growth rate of the services sector since last August. New manufacturing orders grew for the first time after six consecutive months of contraction, with the fastest growth in almost four years.
Manufacturing purchasing activity expanded for the first time in three and a half years, though moderately. The decline in purchasing inventories and finished goods inventories slowed to multi-month lows, registering the smallest drop in 37 and 30 months, respectively. Supplier delivery times were extended for the ninth straight month.
Cyrus de la Rubia noted that the manufacturing base seems more solid, with most PMI sub-indices, such as purchase volume, future output expectations, and inventory indicators, all above last August’s levels. However, he emphasized that new orders still need to show better performance in the coming months for greater confidence in the sector’s outlook.
Germany Recovery Accelerates, France Lacks Growth
Germany's economic performance was the main contributor to eurozone improvement. Germany’s composite PMI rose from 52.1 in January to 53.1, and the services PMI climbed from 52.4 to 53.4, both hitting four-month highs. The manufacturing PMI reached 50.7, exceeding the market expectation of 49.5.
Cyrus de la Rubia said this confirms the particularly noticeable economic turning point in January. German industrial orders unexpectedly rose in December, marking the biggest increase in two years. He noted that unless there is a sharp decline in March, Germany’s Q1 GDP could register significant growth. Increased public spending on defense and infrastructure as well as rising overseas demand were supporting factors.
France's economy continues to struggle. The composite PMI rose from 49.1 to 49.9, slightly better than the market expectation of 49.6, but still in contraction territory.
Hamburg Commercial Bank economist Jonas Feldhusen said the French private sector still finds it hard to gain real traction, with the main drag coming from the demand side: new orders declined again, and export orders deteriorated further.
Recent Banque de France surveys show that the country's economy is expected to improve later this year, with quarterly growth predicted at 0.2% to 0.3%, and the defense and aerospace sectors performing strongly. However, unemployment is seen rising to a four-year high of 7.9% in the last months of 2025.
Employment Contracts, Demand Grows Moderately
Despite faster economic activity growth, eurozone businesses reduced staff for the second consecutive month. Manufacturing layoffs persisted, while services employment was flat, ending five years of continuous employment growth. Employment fell in Germany, remained flat in France, and rose in the rest of the eurozone. Layoff speed in German factories was the second slowest in two and a half years.
Backlogs of orders fell for nearly three straight years, with February’s decline slight and the smallest in four months. New order growth remained moderate, matching January's pace. Manufacturing new orders increased for the first time, but new business growth in services slowed. Export new business (including internal eurozone trade) declined again, with a drop similar to January.
Business confidence fell slightly from January but remained the second highest in 21 months. Manufacturing confidence reached a four-year high, while confidence in the services sector was just below January but still expects business activity to grow in the coming year.
Inflationary Pressure Persists; ECB Likely to Stand Pat
Input cost inflation accelerated for the fourth straight month, reaching the fastest pace in 34 months in February, matching February 2025. Manufacturing input costs rose at the fastest rate since December 2022, while the rise in services input prices moderated somewhat.
Output price increases slowed slightly but were still the second fastest in the past year. Sales price growth accelerated in manufacturing, while it slowed down in services. German businesses raised prices sharply; French companies cut output prices for the first time in three months; price increases in other parts of the eurozone accelerated.
Cyrus de la Rubia said price pressure in the services sector eased somewhat in February. Costs are still rising quickly but not as fast as last month, and the speed at which companies are raising prices to customers has slowed noticeably. He pointed out that given steady expansion in economic activity and persistently high services inflation, the ECB may continue to keep key policy rates unchanged.
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