"Economic locomotive" gains momentum! German manufacturing unexpectedly recovers, Eurozone February PMI preliminary figures exceed expectations

Eurozone private sector activity exceeded expectations, with manufacturing economic activity reaching its best level since 2022, mainly thanks to Germany’s unexpected growth. The Eurozone February SPGI Manufacturing PMI preliminary reading rose to 51.9, up from 51.3 last month, remaining above the 50 expansion/contraction threshold; analysts expected 51.5. The Eurozone February SPGI Composite PMI preliminary reading increased from 51.5 last month to 51.9, higher than the analyst forecast of 51.5.

Germany is the region’s largest economy and the main driver. Due to increased government spending on defense and infrastructure, German manufacturing has expanded for the first time in three and a half years. Although France’s index has improved, it still remains slightly below 50.

Germany February Manufacturing PMI preliminary reading 50.7, expected 49.5, previous 49.1. Germany February Services PMI preliminary reading 53.4, expected 52.3, previous 52.4. Germany February Composite PMI preliminary reading 53.1, expected 52.3, previous 52.1.

France February Manufacturing PMI preliminary reading 49.9, expected 51, previous 51.2. France February Composite PMI preliminary reading 49.9, expected 49.7, previous 49.1. France February Services PMI preliminary reading 49.6, expected 49.2, previous 48.4.

Jonas Feldhusen, an economist at Hamburg Commercial Bank, stated: “The private sector in France still struggles to gain real momentum. Since November last year, the PMI index has hovered around the 50.0 growth threshold, indicating no substantial progress. A typical example is hiring activity, which stagnated in February. The main resistance still comes from demand, with new orders decreasing again, and export orders worsening. From an industry perspective, the situation varied at the start of the year, with manufacturing growing while services contracted. February was similar, with factory production increasing contrasted by a decline in service output. Additionally, business expectations for the coming year have weakened, but since the index measuring business confidence remains above the average level for 2025, we remain cautiously optimistic. Politically, the agreement on the 2026 budget has brought some calm, but the shadow of Macron’s successor remains.”

Cyrus de la Rubia, an economist at Hamburg Commercial Bank, said in a statement on Friday: “It may be premature to draw conclusions now, but this could be a turning point for manufacturing.” He pointed out that industry “is currently in a more stable state and is expected to contribute to overall economic growth this year rather than drag it down.”

After Trump’s tariff push, Europe’s economy has performed steadily, though not spectacularly. Growth is expected to be slightly above 1% this year, with Germany’s spending surge likely boosting the economy, and low, stable interest rates helping consumer confidence reach its highest level since late 2024.

S&P stated that manufacturing has only achieved growth for the second time since 2022, while services continue to expand at a moderate pace. However, de la Rubia noted, “Compared to the fourth quarter, the overall growth momentum has weakened.” The Eurozone February SPGI Services PMI preliminary reading was 51.8, below both the previous and expected 51.9.

The European Central Bank has shown no willingness to adjust monetary policy, satisfied with inflation meeting the 2% target, and believes structural reforms (rather than lowering borrowing costs) are necessary to energize the economy.

de la Rubia emphasized that the much-watched service sector price pressures eased in February, but costs remain rising rapidly. He said, “Given the stable expansion of economic activity and persistent high service inflation, the ECB does not seem to intend to change its key policy rate stance.”

PMI figures are closely watched by markets because they are usually released at the beginning of the month and can effectively reveal economic trends and turning points. Since PMI measures the breadth of output changes rather than depth, business surveys sometimes have difficulty directly correlating with quarterly GDP.