Euro-zone business activity accelerates as manufacturing returns to expansion

Flash survey data shows factory output back in growth territory for the first time in months, offering tentative signs that the bloc’s industrial slowdown may be easing

Business activity across the euro zone strengthened in February, with manufacturing returning to expansion for the first time since late last year, according to newly released preliminary purchasing managers’ index (PMI) figures.

The HCOB Flash Eurozone Composite PMI rose to 51.9 in February from 51.3 in January, marking a fourteenth consecutive month above the 50 threshold that separates growth from contraction. Economists polled ahead of the release had forecast a more modest reading of 51.5.

The manufacturing PMI climbed to 50.8 from 49.5, moving back into expansion territory after months of contraction, while the services PMI eased slightly but remained firmly in growth mode. The composite output index, which combines manufacturing and services activity, rose to 52.1.

The data suggest the euro area economy is broadening its recovery beyond the services sector, which has underpinned growth in recent quarters as factories struggled with weak external demand, high borrowing costs and energy-related pressures.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said the move in manufacturing could signal an inflection point.

“It might be premature, but this could be the turning point for the manufacturing sector as the headline PMI increased to growth territory,” he said.

New orders improved across the bloc, including export demand, indicating that industrial firms are beginning to see more stable conditions after an extended inventory correction cycle. Backlogs of work also stabilised, suggesting companies are adjusting production levels to match demand more closely.

Germany, Europe’s largest economy, has been particularly exposed to the global manufacturing slowdown, according to official statistics. A sustained improvement in factory output would help ease concerns about structural weakness in the euro area’s industrial core.

Recent euro area growth data from Eurostat has also pointed to uneven industrial performance across the bloc, underscoring the significance of any sustained recovery in factory output.

Employment indicators within the survey remained mixed, however, with hiring subdued in some sectors. Input cost pressures continued, although at a slower pace than seen during the peak of inflationary stress.

For policymakers at the European Central Bank, the data provide fresh evidence that growth remains resilient despite elevated interest rates. However, stronger activity may complicate decisions if it feeds into renewed price pressures.

Markets responded cautiously, with investors weighing the durability of the rebound against geopolitical uncertainty and uneven global demand conditions.

While one month’s data does not confirm a sustained industrial revival, the return of manufacturing to expansion territory marks a notable shift after a prolonged period of contraction and offers a more balanced growth profile for the euro area heading into the second quarter.

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