The Eurozone's August PMI preliminary reading rebounded to 50.5—the first time in nearly three years it has risen above the 50 expansion-contraction threshold. Why has European manufacturing suddenly recovered?

Both the U.S. and Europe rebounded together in August—fascinating! Though structural differences may exist, this broad-based recovery is nonetheless positive for the global economy overall. In the U.S., the S&P Global Manufacturing PMI preliminary reading for August came in at 53.3—the highest since May 2022—and far exceeded the expected 49.5. The Services PMI edged down slightly to 55.4, but the sharp rebound in manufacturing lifted the Composite PMI to 55.4, its highest level in nine months. Europe was no slouch either: the Eurozone’s August PMI preliminary reading rose from the prior month’s 49.8 to 50.5—the first time since June 2022 it has crossed above the 50 threshold—and surpassed expectations of 49.5. Germany’s manufacturing PMI surged from 46.9 to 49.9, nearing the 50 line for the first time in three years. France’s August manufacturing PMI preliminary reading stood at 49.9—the highest in 31 months. Key drivers include: The European Central Bank (ECB) cut its deposit rate by 25 basis points in both March and June 2025, bringing it to a historic low. This significantly reduced corporate financing costs—especially long-term loan costs for manufacturing firms. Data show that corporate lending rates in the Eurozone declined by 1.2 percentage points year-on-year in Q2 2025, spurring a 0.8% quarter-on-quarter rise in manufacturing investment. Accommodative monetary policy also indirectly boosted production by lifting market confidence: the Economic Sentiment Indicator (ESI) rose to 95.8 in July 2025—the highest in five months—with the Industrial Confidence Index improving from −11.8 to −10.4. Moreover, the ECB’s relatively benign inflation outlook (projecting 2.3% for 2025) strengthened firms’ pricing power, prompting them to expand capacity! Meanwhile, international crude oil prices in 2025 were about 20% lower than in 2024, and TTF natural gas futures fell to €34 per MWh—70% below their 2022 peak. Energy-intensive sectors (e.g., chemicals, steel) saw markedly eased cost pressures; Germany’s chemical industry PMI rose to 51.2 in August—the first expansion in three years. Notably, with the Red Sea crisis now normalized, shipping companies have adapted via service reductions, speed adjustments, and rerouting—leading to slower growth in vessel capacity on European routes (6–8% in Q2 2025), while demand rose 4–5% quarter-on-quarter, easing supply-demand tensions. Additionally, China-Europe freight train operations increased 18% year-on-year in H1 2025, with logistics efficiency improving by 15%, strongly supporting both raw material imports and finished-goods exports for manufacturers. Of particular note, Germany’s automotive industry’s electrification transition has become a key engine of growth. In June 2025, German auto output rose 3% year-on-year, exports grew 5%, and EV registrations surged 24% year-on-year—accounting for 28.5% of new car sales.

The Eurozone’s July economic performance was solid, and inflation remained stable! Several macroeconomic and confidence indicators hit new highs. What’s your take? Has the European economy truly recovered?

First, consider the PMI data: the July Composite PMI rose to 51.0—the highest in 11 months; the Services PMI reached 51.2—the highest in six months; yet the Manufacturing PMI remained at 49.8, still in contraction territory. This suggests growth is primarily driven by consumption and services demand, whereas manufacturing continues to be weighed down by weak global trade, U.S. tariff threats, and persistently high energy costs—dragging on the broader European recovery. In my view, however, caught between the two major economies—the U.S. and China— Europe’s best path forward may indeed be evolving into a consumption-driven economy, which would better serve the euro’s long-term ambitions. Yet compared to our industrial goods dominance, America’s greater threat lies not just in seeking market access—but in exporting its stablecoin-based financial infrastructure. Currently, Europe’s fragmented market structure leads to pronounced regional divergence across economies: Southern European countries like Spain (PMI >54) and Italy are expanding robustly, while Germany’s Composite PMI stands at only 50.3 (Manufacturing PMI at 49.2), and France has contracted for 11 consecutive months (PMI 49.6). Next, inflation targets: July’s CPI annual rate stood at 2.0%—in line with expectations—while core CPI was 2.4%. This reflects the combined effect of falling energy prices and easing services-sector inflation, keeping overall price pressures mild and manageable—providing room for the ECB to maintain accommodative policy. Yet given today’s international financial market landscape, further rate cuts still carry risks; the ECB is widely expected to await policy signals from both China and the U.S. in September before making its next move. Then there’s the labor market: Europe’s employment situation appears markedly stronger than in the past. The unemployment rate held steady at 6.3% in May, dipped to a record low of 6.2% in June, and July saw the fastest services-sector job growth in over a year—demonstrating labor-market resilience underpinning household incomes and consumption. The Consumer Confidence Index improved from −15.3 to −14.7, confirming marginal improvement in domestic demand. Moreover, services-sector confidence has rebounded: the Economic Sentiment Indicator rose to 95.8—the second-highest level this year—while the Services Confidence Index reached 4.1, its highest since February. Industrial confidence, however, remains subdued at −10.4. The Ifo Business Climate Index shows Germany’s business sentiment at just 88.6, indicating continued caution among firms regarding investment and expansion. Yet we also observe narrowing trade surpluses: the Eurozone’s April 2025 trade surplus shrank to €9.9 billion—below both last year’s €13.6 billion and the market expectation of €18.2 billion—mainly due to U.S. tariff hikes sharply reducing the chemicals trade surplus. Exports declined 1.4% year-on-year to €243 billion, with notable drops in mineral fuels & lubricants (−25.3%) and machinery & transport equipment (−5.6%). Chemicals exports rose 6%, but far less than March’s 50.5% surge. Eurozone exports to the U.S. slowed to 3.9% year-on-year (down from 63.9% the previous month), while exports to China and the UK fell 14.9% and 6.0%, respectively.

European Business Sentiment Rises Amid Inflation Concerns, Survey Finds

15 hours ago

A BusinessEurope survey indicates improved industrial sentiment across Europe, though inflation remains a key concern with energy costs surging to 20% and food prices climbing. Investment expectations have risen despite revised growth forecasts for the current year.

reuters

2026-11-11

European Business Sentiment Rises Amid Inflation Concerns, Survey Finds

European Business Sentiment Rises Amid Inflation Concerns, Survey Finds

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