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Green Shoots for Manufacturing in Europe?

The S&P Flash Global Manufacturing PMIs for Germany, the Euro Area, and the UK have shown an upward trend since the summer of 2023, surpassing expectations. Specifically, Germany's manufacturing PMI reached 45.4, against a forecast of 43.7; the Euro Area's PMI was 46.6, exceeding the expected 44.8; and the UK's PMI was 47.3, higher than the anticipated 46.7. Although the service PMIs in Germany and the Euro Area were disappointing, the UK's service PMI also exceeded expectations.

Despite the overall activity in the Euro Area and Germany, its largest economy, still being in a phase of contraction, the recent positive movement is encouraging and indicates a gradual recovery from low points. The manufacturing sector, in particular, has been a significant burden on the European economy, but there are signs of a turnaround as expectations begin to rise, buoyed by substantial progress in reducing inflation.

Our Take: This data further confirms that economic activity is gradually improving across the continent. This trend, previously indicated by leading indicators we've discussed, is expected to persist, giving the European Central Bank (ECB) and the Bank of England (BoE) reasons to hold off on premature rate cuts. Coupled with the marked improvement in external accounts, this presents one less reason to hold a pessimistic view of the Euro.


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