The Eurozone witnessed a continued expansion in business activity for the third consecutive month in March. This growth was fueled by an upturn in German manufacturing and a decrease in inflationary pressures, signaling potential for a more enduring economic recovery in the region.
ADVERTISEMENTEurope’s largest economy, Germany, may be on the verge of an economic boost with the comeback of manufacturing and a decrease in price pressures across the Eurozone providing hope for a turnaround in the continent’s economic landscape.
The recent business surveys, known as Purchasing Managers’ Indexes (PMIs), have shown that the Eurozone’s private sector expanded for the third consecutive month in March, revealing a resilient private sector.
The Flash Eurozone Composite PMI from Hamburg Commercial Bank, which tracks activity in both manufacturing and services, increased to 50.4 from 50.2 in February, marking a seven-month high.
Although it fell slightly short of the expected 50.8, the readings above 50 indicate growth, while below 50 signals contraction.
Manufacturing output increases, price pressures decrease
In the Eurozone, manufacturing output has returned to growth after a two-year hiatus, reaching the highest level since May 2022.
This strength largely stems from a robust rebound in Germany’s manufacturing sector, where producers have grown more confident following the announcement of a new fiscal package.
“While there is a chance that Europe seizes this chance and shows more unity with respect to reforms, defense spending, and completing the capital market union, among other things,” stated Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
While manufacturing output showed a positive growth, growth in services activity slowed with the services PMI dropping to 50.4 from 50.6 in February, missing expectations of 51.
A notable decrease in inflationary pressures was another positive point, with input cost inflation slowing to its lowest since November, ending a five-month streak of acceleration.
Simultaneously, selling price inflation softened, suggesting a weaker increase compared to 2025 so far, providing the European Central Bank more room to consider cutting interest rates.
“The price development in the services sector, closely monitored by the ECB, will likely be welcomed by the monetary authority’s dovish faction,” added de la Rubia.
Germany leads the rebound, France continues to struggle
Germany’s composite PMI rose to 50.9 in March, its highest since May 2024, highlighting a stronger performance by Europe’s largest economy.
German manufacturing output, a forward-looking measure of factory activity, jumped to 52.1 from 48.9, reaching a 36-month high.
Alternatively, the service sector in Germany experienced a slight weakening, with the PMI dropping to 50.2 from 51.1, below expectations of 51.6.
“Manufacturers have ramped up production for the first time in nearly two years – a pleasant surprise,” commented de la Rubia.
ADVERTISEMENTFrance, the Eurozone’s second-largest economy, continues to face challenges, with the composite PMI improving to 47.0 in March from 45.1 in February but still in contraction territory.
Subdued demand in key sectors such as automotive, construction, and agriculture were cited as reasons for the muted outlook.
Europe’s Path Forward: Building on the Momentum
The Eurozone’s mixed economic performance, with Germany gaining momentum and France lagging behind, indicates a potential transition to a recovery phase.
A modest increase in activity and a decrease in inflation could pave the way for the European Central Bank to relax its tight policy stance later in the year, assuming potential disruptions, such as those from US tariffs, remain limited.
There is cautious optimism that Europe’s commitment to structural reforms and fiscal investment could enhance long-term competitiveness.
ADVERTISEMENTWhether the March data marks the start of a sustainable recovery or just a temporary setback remains to be seen. Still, Europe’s economy is exhibiting signs of activity, and the markets are taking note.
On Monday, the euro appreciated by 0.2% to 1.0830. European stocks recorded modest gains, with the Euro STOXX 50 index rising 0.3%, and Germany’s DAX outperforming by climbing 0.8%.
