Eurozone Manufacturing Beats Expectations, Services Disappoint in February

Manufacturing PMI Hits Nine-Month High

The HCOB Flash Eurozone Manufacturing PMI climbed to 47.3 in February, up from 46.6 in January, marking a nine-month high. While the index remained in contraction territory (below 50), the improvement exceeded market expectations and signaled a slowing decline in manufacturing output. The Manufacturing Output Index also rose to 48.7 from 47.1, underscoring resilience in the sector despite continued challenges.

Services Sector Loses Momentum

In contrast, the services sector underperformed. The HCOB Flash Eurozone Services PMI dropped to 50.7 from 51.3, hitting a three-month low. The weaker-than-expected performance highlighted the sector’s waning momentum, as new business fell for the first time in three months. The slowdown in services growth, which has been a key driver of the Eurozone’s recent economic stability, raises concerns about the sustainability of overall economic performance.

Germany Shines While France Struggles

Regional disparities were evident in the latest data. Germany’s economic output expanded for the second consecutive month, achieving a nine-month high, driven by both manufacturing gains and modest services growth. On the other hand, France saw a pronounced decline in business activity, with services dragging down overall performance. The rest of the Eurozone fared better, showing solid growth and partially offsetting the underperformance in France.

Inflation and Employment Trends Pose Risks

Input cost inflation accelerated to its fastest pace in nearly two years, driven primarily by the services sector. Manufacturing input costs rose at the quickest rate in six months, although price increases remained modest. Employment trends were mixed: while the services sector added jobs, manufacturing saw the steepest workforce reductions in over four years. Germany and France both posted job losses, whereas employment in the rest of the Eurozone rose at the fastest pace in five months.

Market Forecast: Cautious Optimism for Manufacturing, Bearish on Services

The Eurozone’s manufacturing sector showed signs of stabilizing, suggesting potential opportunities for traders focused on industrial assets and equities. However, the services sector’s underperformance, coupled with inflationary pressures and mixed employment data, casts a bearish shadow over broader market sentiment. Traders may want to approach the services sector with caution, as weak demand and a dip in business confidence could limit upside potential.

More Information in our Economic Calendar.