Europe’s economic powerhouse may finally be getting up to speed, with an uptick in German manufacturing and declining price pressures throughout the Eurozone providing some optimism that the region’s economy might soon show signs of improvement.
The most recent business surveys, referred to as Purchasing Managers’ Indices (PMIs), indicated that the private sector in the eurozone grew for the third successive month in March.
The Hamburg Commercial Bank Flash Eurozone Composite PMI, an important indicator prepared by S&P Global tracking business activities in both services and manufacturing sectors, rose slightly to 50.4 from 50.2 in February.
This represented a peak reached after seven months; however, it did not quite meet the collective forecast of 50.8. Figures over 50 signify expansion, whereas numbers under suggest decline.
Manufacturing production surges, but price increases ease
The Eurozone’s manufacturing production rebounded into growth territory, marking the first increase in two years and hitting its peak since May 2022.
This robustness mainly comes from an unexpected revival in Germany’s manufacturing industry, where manufacturers became more optimistic after the announcement of a fresh financial stimulus plan.
“There’s a good chance that Europe might seize this moment to demonstrate greater solidarity in areas such as reforms, defense expenditure, and finalizing the capital market union, among other aspects,” stated Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
Although manufacturing performed better than anticipated, the expansion in service sector activities decelerated. The services Purchasing Managers’ Index (PMI) declined to 50.4 from 50.6 in February, falling short of forecasts expecting a reading of 51.
A positive development was the significant decline in inflationary pressures. The rate of input cost inflation—a gauge of what businesses spend on materials and services—decreased to its lowest point since November, breaking an uptrend that had lasted five months. Likewise, selling price inflation weakened, marking the smallest rise observed this year in 2025.
This might provide the European Central Bank with additional time to contemplate when it should start decreasing interest rates. Experts suggest that rate cuts may be reinstated as soon as June, assuming inflation keeps moving towards the ECB’s 2% objective.
“The progression in prices within the service industry, closely watched by the ECB, will be welcomed by those among the monetary authorities who are more dovish,” stated de la Rubia.
Germany takes the lead in the comeback, while France drops back.
Germany’s combined PMI rose to 50.9 in March from 50.4 the prior month, indicating its best performance since May 2024. Although this remains relatively mild compared to past figures, the indicator shows that the continent’s biggest economy is gradually stabilizing.
The indicator for German manufacturing production – a predictive measure of industrial action – surged to 52.1 from 48.9, reaching a peak not seen in three years.
The growth in the service sector has somewhat slowed down, as indicated by the PMI dropping to 50.2 from 51.1, which is lower than the expected 51.6 according to market forecasts. This implies that businesses within this sector are beginning to decelerate their pace.
What a delightful shock — producers have increased output for the first time in almost 24 months.
Economic growth for the initial three months appears encouraging as the composite PMI has remained above the expansionary threshold each month. The fiscal stimulus may signify the start of a more enduring upturn.
France, the eurozone’s second-biggest economy, keeps facing challenges. The country’s composite Purchasing Managers’ Index (PMI) increased to 47.0 in March from 45.1 in February, indicating a deeper contraction than anticipated but showing some improvement nonetheless. Production has been declining for seven straight months, largely due to ongoing weaknesses in both manufacturing and service sectors.
The purchasing managers’ index for French manufacturing rose to 48.9 from 45.8, and the service sector moved slightly higher to 46.6 from 45.3. Although these figures still indicate a decrease, the less severe rate of reduction suggests that things might be improving and the toughest times could possibly be behind us.
Dr Tariq Kamal Chaudhry, an economist at Hamburg Commercial Bank, stated that uncertainties both within the country and globally, along with competitive pressures and weak demand in crucial sectors like automotive, construction, and agriculture, were highlighted as factors contributing to the lackluster economic forecast.
“Even though expectations for better performance climbed to their highest point in nine months,” he noted.
Is Europe able to capitalize on the current progress?
The eurozone’s inconsistent performance – where Germany accelerates while France lags – suggests an economy shifting towards a possible recovery stage.
Nevertheless, an increase in economic activity coupled with decreasing inflation might allow the European Central Bank to begin relaxing its stringent policies later this year, provided that disturbances caused by US tariffs remain minimal.
Overall, there is guarded hope that Europe’s dedication to structural reforms and fiscal investments might bolster long-term competitiveness.
Whether March’s data marks the beginning of a durable recovery or just a temporary reprieve remains to be seen. But for now, Europe’s economy is finally showing signs of movement – and markets are paying attention.
On Monday, the euro advanced slightly by 0.2% to reach 1.0830, whereas European equities saw minor increases. The Euro STOXX 50 index climbed by 0.3%, led by Germany’s DAX which performed better, surging by 0.8%.
