Prime Highlights

• Eurozone manufacturing activity rebounded in February, with the flash PMI rising to 50.8, signaling expansion for the first time since June 2022.
• Germany led the recovery with manufacturing PMI at 50.7, supported by rising new orders, exports, and government infrastructure spending.

Key Facts

• The broader eurozone composite PMI, covering manufacturing and services, increased to 51.9, showing overall private sector growth despite France lagging at 49.9.
• Input prices across the eurozone rose at the fastest pace since December 2022, driven by higher manufacturing and energy costs, while overall price increases slowed slightly.

Background

Eurozone manufacturing activity returned to growth in February, reaching its strongest level since June 2022, according to a closely followed business survey. The flash Manufacturing Purchasing Managers’ Index (PMI) rose to 50.8 from 49.5 in January, crossing the key 50 mark that separates contraction from expansion.

The data, compiled by S&P Global and Hamburg Commercial Bank, exceeded market expectations and pointed to improving momentum in the region’s factory sector after a long period of weakness.

The broader composite PMI, covering manufacturing and services, rose from 51.3 to 51.9, showing that overall private sector activity is still growing. Services remained in expansion territory at 51.8, though slightly below forecasts.

Economists said February’s rebound may signal a turning point for eurozone manufacturing, which has weighed on growth for much of the past two years due to weak global demand, higher energy costs and tight financial conditions. New orders returned to moderate growth after three months of decline, suggesting output could rise further in the months ahead.

Germany led the recovery as its manufacturing PMI rose from 49.1 to 50.7. German factories saw strong growth in new orders, including exports, and order backlogs grew for the first time since mid-2022. Higher public spending on infrastructure and defence, along with improving foreign demand, supported the rebound.

In contrast, France continued to lag. Its composite PMI stood at 49.9, indicating near stagnation. Manufacturing slipped back into contraction, services output declined and export demand remained weak.

Rising costs are putting pressure on businesses. Input prices across the eurozone rose fastest since December 2022, mostly because of higher manufacturing and energy costs. Some firms raised their prices for customers, but overall price increases slowed down a little.

For the European Central Bank, the mixed signals present a challenge. Growth is improving, but prices in some parts of the economy are staying high. Suggesting policymakers are unlikely to shift policy quickly.