February PMIs point to positive growth momentum for Eurozone

A comeback for German manufacturing has sparked new momentum in the eurozone economy, brightening the short-term outlook.

The eurozone PMI increased to 51.9 in February from 51.3 in January. This is the highest level since November last year. While the manufacturing PMI surged to 50.8 from 49.5 in January, the services PMI improved only marginally to 51.8 from 51.6.

Looking at the larger eurozone countries, the silent rebound of the German economy occurring under the surface continues, with the PMI composite reaching a four-month high and the PMI manufacturing crossing the magic 50-threshold for the first time in almost four years. As business sentiment in France basically stagnated, it indeed looks as if the two largest eurozone economies could swap their roles for eurozone growth, with Germany becoming a growth driver and France, in turn, proving a drag on eurozone growth.

And as the economic rebound in the eurozone appears to gain momentum, inflation – at least as measured in the PMI surveys – is also on the rise again. Both input costs and selling prices were raised in February, with a faster rise in manufacturing selling prices than in services.

Overall, at the end of a week that was dominated by the aftermath of last week’s informal European summit and this week’s rumours of a possible early exit for Christine Lagarde from the ECB, this morning’s PMI readings bring back some economic normality. And it’s a pleasant reality. We've previously discussed the German ketchup bottle effect; it now finally seems to be happening. Driven by a rebound in German manufacturing, the eurozone economy is gaining momentum, leaving the geopolitical tensions of the past behind – at least for now.

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