Eurozone business activity expanded for a third straight month in March, driven by a rebound in German manufacturing and easing inflation pressures, offering early signs of a more sustained recovery.
ADVERTISEMENTEurope’s economic engine might finally be shifting into gear, as a rebound in German manufacturing and easing price pressures across the euro area offered a glimmer of hope that the continent’s economy could be turning a corner.
The latest business surveys, known as Purchasing Managers’ Indexes (PMIs), revealed that the eurozone's private sector expanded for a third consecutive month in March.
The Hamburg Commercial Bank Flash Eurozone Composite PMI, a key gauge compiled by S&P Global that tracks activity in both services and manufacturing, ticked up to 50.4 from 50.2 in February.
That marked a seven-month high, though it fell slightly short of consensus expectations for 50.8. Readings above 50 indicate growth, while anything below signals contraction.
Manufacturing output soars, price pressures slow
Eurozone’s manufacturing output returned to growth, expanding for the first time in two years and reaching the highest level since May 2022.
This resilience largely stems from a surprising rebound in Germany’s manufacturing sector, where producers grew more confident following the announcement of a new fiscal package.
“There is some likelihood, that Europe seizes the opportunity and shows more unity with respect to reforms, defence spending, and completing the capital market union, to name a few things,” Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said.
While manufacturing surprised positively, growth in services activity slowed. The services PMI slipped to 50.4, from 50.6 in February, missing expectations of 51.
Another bright spot was a notable easing in inflationary pressures. The rate of input cost inflation — a measure of what companies pay for materials and services — slowed to its lowest since November, ending a five-month streak of acceleration. Similarly, selling price inflation softened, with the pace of increase the weakest in 2025 so far.
That could give the European Central Bank more breathing room as it considers when to begin cutting interest rates. Analysts have speculated that rate reductions could resume as early as June, provided inflation continues to trend toward the ECB’s 2% target.
“The price development in the services sector, which is very much under the scrutiny of the ECB, will be well received by the doves of the monetary authority,” said de la Rubia.
Germany leads the rebound, France falls behind
Germany’s composite PMI climbed to 50.9 in March from 50.4 the previous month, marking its strongest performance since May 2024. While still modest by historical standards, the reading confirms that Europe's largest economy is slowly finding its footing.
The index for German manufacturing output – a forward-looking gauge of factory activity – jumped to 52.1 from 48.9, hitting a 36-month high.
Service sector momentum slightly weakened, with PMI falling to 50.2 from 51.1, below consensus expectations of 51.6, suggesting that service providers are hitting the brakes.
“What a pleasant surprise – manufacturers have ramped up production for the first time in nearly two years.”
ADVERTISEMENT“Economic growth in the first quarter looks promising, with the composite PMI staying above the expansionary threshold every month. Thanks to the fiscal package, this could mark the beginning of a more sustained recovery.”
The eurozone’s second-largest economy continues to struggle. France’s composite PMI rose to 47.0 in March from 45.1 in February, still deep in contraction territory but higher than expected. Output has now shrunk for seven consecutive months, weighed down by persistent weakness in both manufacturing and services.
The French manufacturing PMI improved to 48.9 from 45.8, while services inched up to 46.6 from 45.3. While still pointing to a decline, the slower pace of contraction offers a glimmer of hope that the worst may be over.
“Uncertainty both domestically and internationally, competitive pressures, and subdued demand in key sectors such as automotive, construction, and agriculture were cited as reasons for the muted outlook,” said Dr Tariq Kamal Chaudhry, economist at Hamburg Commercial Bank.
ADVERTISEMENT“Although hopes for improved activity did rise to their strongest level in nine months," he added.
Can Europe build on the momentum?
The eurozone’s uneven performance – with Germany picking up speed as France trails behind – points to an economy in transition to a potential recovery phase.
Still, a slight uptick in activity and easing inflation could open the door for the European Central Bank to start unwinding its tight policy stance later this year, as long as potential disruptions from US tariffs stay limited.
More broadly, there is cautious optimism that Europe’s commitment to structural reforms and fiscal investment could support longer-term competitiveness.
ADVERTISEMENTWhether 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.
The euro edged up 0.2% to 1.0830 on Monday, while European stocks posted modest gains. The Euro STOXX 50 index rose 0.3%, with Germany’s DAX outperforming, climbing 0.8%.
