Bold take: Eurozone manufacturing has surged to its strongest pace in nearly four years, driven by a rebound in new orders and output, even as costs squeeze margins. But here’s where it gets controversial: the improvement is tempered by stubborn inflation pressures and a weak job picture that could temper lasting gains.
The February reading of the HCOB Eurozone Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, climbed to 50.8 from 49.5 in January. This sharp move above the 50.0 threshold signals growth for the first time since August and marks the best performance since June 2020. A broad-based recovery is evident, with six of the eight surveyed countries in expansion territory.
Key drivers include the strongest rise in new orders since April 2022, with demand returning to positive territory for only the second time in nearly four years. Factory output also rose for the 11th time in 12 months, hitting a six-month peak. Germany led the rebound, returning to growth for the first time in three-and-a-half years; Italy, the Netherlands, Ireland, and Greece also posted solid gains. France was the notable laggard, with manufacturing broadly stagnating after a robust January, while Spain stagnated and Austria slipped modestly.
Export orders remained weak, though they contracted at the mildest pace in three months, suggesting demand stabilization rather than a full recovery in external demand.
Inflationary pressures intensified noticeably. Input costs rose at the fastest rate in 38 months as energy prices climbed, and manufacturers passed much of these cost increases to selling prices, which rose at the steepest pace since March 2023. Despite the cost squeeze, business confidence improved to a four-year high, as firms remained optimistic about year-ahead growth prospects.
On the labor front, employment in the eurozone’s manufacturing sector continued to decline, extending a trend since mid-2023, though the rate of job losses moderated somewhat.
In summary, the eurozone appears to be moving through a broad-based, if uneven, revival in manufacturing activity, powered by demand recovery and output gains but constrained by ongoing price pressures and a slow employment picture. What do you think will determine whether this momentum is sustained through the next quarter: cooling inflation, stronger export demand, or another shock to energy prices?
