Eurozone manufacturing activity showed signs of improvement in February, with the final PMI at 47.6, up from a preliminary 47.3 and prior 46.6. Despite the overall contraction, Germany’s PMI reached a two-year high, indicating stabilisation in factory production to start the year.
New orders declined at the slowest rate since May 2022, suggesting potential growth in the coming months. However, job cuts increased in February, a common occurrence even after a recession ends.
Business Confidence And Economic Factors
Most companies expressed optimism about the future, with the confidence index slightly above the long-term average. Factors such as political stability in Germany and the possibility of ending the conflict in Ukraine may contribute positively.
Factory activity in the euro area remains in decline, though at a slower pace than in previous months. A reading below 50 still marks contraction, yet the higher PMI figures hint at conditions becoming less severe. The latest uptick offers a reason to monitor output levels more closely, as even modest improvements can influence expectations.
Germany, often seen as the industrial backbone of the region, saw its manufacturing gauge rise to levels not observed in two years. While still in negative territory, this shift implies a reduced strain on production. If this pattern holds, it may lead to steadier operations and fewer disruptions in supply chains. The adjustment in new orders supports this view, as the downward trend is losing momentum. If businesses adapt to lower costs and stabilising demand, the sector could see renewed activity.
Nevertheless, employers are not slowing down workforce reductions. Cutting jobs can persist even after downturns ease, as businesses remain cautious when faced with uncertain conditions. The persistence of layoffs reflects cost-saving measures rather than imminent weakness, though an extended period of reductions could interfere with purchasing power and demand for goods.
Monitoring Future Developments
Optimism remains present, supported by factors that may improve broader confidence. Political steadiness in Germany provides reassurance for companies planning ahead. A clearer path regarding external conflicts could also remove uncertainties that weigh on economic sentiment. Expectations for future conditions have moved above historical norms, which may translate into steadier investment decisions.
While these elements shape the outlook, the focus now shifts to upcoming data releases. Further signs of demand picking up would reinforce the idea that the downturn is losing strength. If firms continue adjusting operations in response to changing orders, it will reveal whether the latest trend has staying power.
