(Feb 20): Private-sector activity in the euro area surpassed expectations as manufacturers recorded their best performance since 2022 thanks to surprise growth in Germany.
The Composite Purchasing Managers’ Index compiled by S&P Global rose to 51.9 in February from 51.3 the previous month, holding above the 50 threshold separating growth from contraction. Analysts had predicted a smaller improvement, to 51.5.
Germany, the region’s biggest economy, was the main driver, with manufacturing expanding for the first time in more than 3 1/2 years as the government ramps up expenditure on defense and infrastructure. While France’s reading improved, it fell just shy of 50.
“It might be premature, but this could be the turning point for the manufacturing sector,” Cyrus de la Rubia, an economist at Hamburg Commercial Bank, said Friday in a statement. Industry is “on a more stable footing and could contribute to overall growth this year instead of being a drag.”
Europe’s economy is performing solidly, if unspectacularly, in the aftermath of Donald Trump’s tariff spree. Growth this year — expected at just over 1% — is set to be buoyed by Germany’s spending splurge, while low and stable interest rates have helped lift consumer confidence to its highest since late 2024.
See also: French business activity held back by manufacturing dip
While the manufacturing sector grew for only the second time since 2022, services continued to expand at a moderate rate, according to S&P. But “compared to the fourth quarter, overall growth dynamics have lost some momentum,” de la Rubia said.
The European Central Bank is showing no appetite to tweak monetary policy, satisfied that inflation is in line with its 2% goal and deeming that structural reforms — rather than lower borrowing costs — are necessary to make the economy more dynamic.
“The composite PMI survey for the euro area suggests that the bloc’s economy continues to expand modestly despite the rise in US tariffs and the strong euro. Our view is still that those headwinds will keep GDP growth below trend and that the risks to the ECB’s forecasts are to the downside,” said Bloomberg Economics.
See also: UK retail sales grow fastest in 20 months
De la Rubia highlighted that prices pressures in the closely watched services sector abated a bit in February, but said costs are still increasing rapidly.
“Given the stable expansion of economic activity and a still-elevated service inflation, the ECB does not seem to be inclined to change its view to stay put with respect to their key policy rates,” he said.
PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.
A composite reading from the UK came in higher than anticipated, at 53.9. The US’, due later in the day, is also expected to remain well above 50.
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