Eurozone Manufacturing PMI hits a three-and-a-half-year high, with Germany's rebound driving the overall, while France remains below the growth contraction threshold

Eurozone February Economic Activity Accelerates, Manufacturing Returns to Expansion for the First Time in 3.5 Years, Reaching a New High Injecting New Momentum into the Region’s Economic Recovery. Germany’s Manufacturing Performance Becomes a Key Driver, While France’s Economy Continues to Struggle on the Edge of Contraction, Highlighting Diverging Recovery Speeds Within the Eurozone.

Data from S&P Global shows that the Eurozone’s Composite PMI rose from 51.3 in January to 51.9 in February, with the Manufacturing PMI jumping from 49.5 to 50.8, reaching a 44-month high and returning above the 50 expansion threshold for the first time since August last year. The Services PMI slightly increased to 51.8 from 51.6.

Germany’s economy improved significantly, with the Composite PMI reaching 53.1, its highest in four months, and the Manufacturing PMI hitting 50.7, marking its first entry into expansion territory since June 2022. In contrast, France’s Composite PMI rose from 49.1 to 49.9 but still remained below 50, with continued weakness in manufacturing dragging down overall performance.

Cyrus de la Rubia, Chief Analyst at Hamburg Commercial Bank, stated that “Considering that economic activity is steadily expanding and service sector inflation remains high, the European Central Bank is expected to maintain its key policy interest rates unchanged.”

Eurozone Manufacturing Shows Turning Point

The manufacturing sector in the Eurozone is showing multiple positive signals. In February, the Manufacturing Output Index rose to 52.1, its highest since August last year, and for the first time since August, it surpassed the growth rate of service activity. New manufacturing orders increased for the first time after six consecutive months of contraction, with the fastest growth in nearly four years.

Manufacturing procurement activity expanded for the first time in three and a half years, albeit modestly. Both procurement inventory and finished goods inventory growth slowed to their slowest in months, with declines of 37 months and 30 months respectively. Supplier delivery times extended for the ninth consecutive month.

Cyrus de la Rubia noted that the manufacturing foundation appears more solid, with most PMI sub-indicators such as procurement volume, future output expectations, and inventory levels all higher than August last year. However, he emphasized that new orders need to show better performance in the coming months to boost confidence in the industry’s outlook.

Germany’s Recovery Accelerates, France’s Growth Remains Weak

Germany’s economic performance is the main contributor to the Eurozone’s improvement. The country’s Composite PMI increased from 52.1 in January to 53.1, and the Services PMI rose from 52.4 to 53.4, both reaching four-month highs. The Manufacturing PMI reached 50.7, surpassing market expectations of 49.5.

Cyrus de la Rubia confirmed that this underscores the clear economic turning point observed in January. Germany’s industrial orders unexpectedly increased in December, posting the largest rise in two years. He stated that unless there is a significant decline in March, Germany’s GDP in the first quarter could see notable growth. Factors supporting this include increased defense and infrastructure public spending, as well as rising overseas demand.

France’s economy continues to struggle. Although the Composite PMI rose from 49.1 to 49.9, slightly above the market forecast of 49.6, it still remains in contraction territory.

Jonas Feldhusen, Economist at Hamburg Commercial Bank, said that the private sector in France still lacks real momentum, mainly due to demand-side drag. New orders declined again, and export orders worsened.

Recent surveys by the Bank of France indicate that the country’s economy is expected to improve later this year, with quarterly growth projected at 0.2% to 0.3%. Defense and aerospace sectors performed strongly. However, the unemployment rate rose to 7.9% in the last few months of 2025, a four-year high.

Employment Contracts, Demand Growth Moderates

Despite the acceleration in economic activity, Eurozone companies reduced staff for the second consecutive month. Manufacturing layoffs continued, while service employment remained flat, ending a five-year streak of employment growth. Employment in Germany declined, France’s employment held steady, and other parts of the Eurozone saw employment increase. However, factory layoffs in Germany were the slowest in nearly two and a half years.

Backlog orders have declined for nearly three years, with a slight decrease in February—the smallest in four months. New orders growth remained moderate, matching January’s pace. Manufacturing new orders turned positive for the first time, but new business in services slowed. Export new business, including intra-Eurozone trade, declined again, with the decrease roughly matching January.

Business confidence slightly retreated from January but remains the second highest in 21 months. Manufacturing confidence reached a four-year high, while service sector confidence was slightly below January but still optimistic about future business activity.

Inflationary Pressures Persist, ECB Expected to Hold Steady

Input cost inflation accelerated for the fourth consecutive month in February, reaching a 34-month high, matching the level seen in February 2025. Input prices in manufacturing rose at the fastest pace since December 2022, while service sector input prices increased at a slightly slower rate.

Output prices rose at a slightly slower pace but still recorded the second-fastest increase in the past year. Selling prices in manufacturing accelerated, while those in services slowed. German firms raised prices significantly, whereas French firms cut output prices for the first time in three months, with prices in other parts of the Eurozone accelerating.

Cyrus de la Rubia noted that service sector price pressures eased somewhat in February. Costs are still rising rapidly but at a slower pace than last month, and firms are raising prices to customers at a noticeably slower rate. He pointed out that “Given the stable expansion of economic activity and high service sector inflation, the European Central Bank is likely to maintain its key policy interest rates unchanged.”

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