Another mild winter and well-filled gas stocks have pushed European natural gas prices to their lowest level since the second quarter of 2021. This not only contributes to a further decline in inflation but also provides a tailwind for the euro area economy. Sentiment indicators continue to rise, albeit from subdued levels. As a result, the composite PMI rose to an eight-month high in February, but remains below the boom-bust level of 50. Germany's Ifo index also showed some progress in February. However, the weak German economy continues to weigh on overall eurozone growth.
The gap between manufacturing and services continues to persist, with manufacturing still working to clear excess inventory, while activity in services is accelerating on the back of decent consumer demand. Employment in the euro area rose for the second consecutive month in February, according to the PMI survey, but this was largely due to stronger employment in the services sector. That said, inventory adjustment will be over by summer, signaling a recovery in the manufacturing industry, while the negative impact of rising interest rates on the construction industry should gradually fade. In fact, the euro area loan statistics for January show that loan growth remains weak, although the month-on-month figures even show a slight increase, so the economic downturn appears to be behind us.
