The economic fortunes of the eurozone's two giants are divergent. While Germany faces challenges and remains under pressure, France is showing signs of recovery.
advertisementThe situation in the euro area is complex, with the manufacturing sector continuing to contract, while the services sector is showing signs of improvement after six months of weakness.
The latest survey of private sector activity in the euro area, based on the Hamburg Commercial Bank's (HCOB) preliminary Purchasing Managers' Index (PMI), also showed striking differences between the two largest economies. While Germany's economic contraction deepens, France shows signs of hope for recovery.
The index varies from 0 to 100, with measurements above 50 indicating an overall increase compared to the previous month, and below 50 indicating an overall decrease. Simply put, any reading below 50 still indicates shrinkage, even if it's smaller than before.
Eurozone shrinks, but not as much as expected
Eurozone private sector activity improved slightly in February, with HCOB's composite PMI index rising to 48.9 from 47.9 in January.
The latest figure was the lowest drop in eight months and exceeded expectations of 48.5.
However, manufacturing has lagged behind, with HCOB's preliminary euro zone manufacturing PMI falling to 46.1 from 46.6. This is lower than the expected 47 and marks the 11th consecutive month of decline for the sector.
Conversely, the services sector brought a wave of optimism. The corresponding HCOB preliminary Eurozone Services PMI rose to a neutral 50 level, significantly up from January's 48.4 and above expectations of 48.8.
Norman Liebke, an economist at the Hamburg Commercial Bank, suggested a glimmer of hope that the eurozone is on the road to recovery, particularly in the services sector.
He noted that while France is recovering more strongly in both the services and manufacturing sectors, “Germany is acting as a brake on eurozone growth.”
However, the latest PMI figures may not be very encouraging for the European Central Bank (ECB).
Output prices rose primarily as labor-intensive service sectors grappled with wage inflation.
Germany: Europe's sick man?
Indeed, the latest figures show that the situation is not good for Germany.
The HCOB Flash German Composite PMI Production Index for February was 46.10 points, down from 47 points previously and lower than the expected 47.5 points. This marks the eighth consecutive month that the index has fallen below the benchmark 50.0, indicating continued contraction.
Germany's economic momentum has been hampered by a sharp decline in manufacturing, with the PMI falling to a four-month low of 42.3, compared with January's 45.5 and an expected 46.1.
Business activity also decreased in the service sector, but the rate of contraction was small and slowed from the previous month. Germany's flash services PMI rose slightly to 48.2 from 47.7 in February, slightly above expectations of 48.
Commenting on the data, Dr. Tariq Kamal Chowdhury, an economist at the Hamburg Commercial Bank, said: “The German economy remains under pressure,” with manufacturing holding down the overall performance of the economy more than the services sector can compensate. He added that
He said the outlook for Germany's economy was “not necessarily bright” and that Berlin needed to take action to address structural problems, especially with an aging population and changes in working behavior on the horizon. I warned you that there is.
France is currently in 'recovery mode'
Things appear to be getting a little easier for France's battered economy.
advertisementFrance's preliminary composite PMI index showed a notable increase from 44.6 in January to 47.7 in February. Although it is still below the 50-point threshold and is still on the decline, the pace of decline was slower than expected, with economists expecting a score of 43.5.
Overall output levels fell at the slowest pace since May 2023, when the current contraction began, supported by an improving demand environment, rising employment and business confidence that reached a seven-month high.
Improvements came from both the service and manufacturing sectors. The manufacturing PMI was 46.8, up from 43.1 in the previous survey and also higher than expected at 43.5.
The services PMI also rose from 45.4 to 48, the highest level since June 2023, and above expectations of 45.6.
Liebke said France's economy was “in recovery mode” and that the manufacturing new orders index had risen by more than 7 points, but it remained to be seen whether this was a blip or the start of a trend. added.
advertisementIt is also noteworthy that the rerouting of ships from the Suez Canal due to attacks in the Red Sea continued to have a limited impact on the French economy.
