Eurozone business activity rises to 50.4 in March, highest level in seven months

The eurozone’s business activity has shown encouraging signs of recovery in March 2025, marking the third consecutive month of expansion. This positive trend is primarily driven by a rebound in Germany’s manufacturing sector and easing inflation pressures across the region, suggesting that the economic engine of Europe may finally be shifting into gear.

According to the latest Purchasing Managers’ Index (PMI) data compiled by S&P Global, the Hamburg Commercial Bank Flash Eurozone Composite PMI rose to 50.4 in March, up from 50.2 in February. This figure represents the highest level recorded in seven months, although it slightly missed analysts’ expectations of 50.8. A PMI reading above 50 indicates growth, while below 50 signals contraction. 

Manufacturing output rebounds

One of the most significant developments in March was the return to growth in the eurozone’s manufacturing output, which expanded for the first time in two years. This resurgence is largely attributed to a surprising recovery in Germany’s manufacturing sector, where confidence among producers has increased following the announcement of a new fiscal package. The German composite PMI climbed to 50.9, its strongest performance since May 2024, with the manufacturing output index soaring to 52.1, marking a 36-month high. 

Despite this positive momentum in manufacturing, growth in the services sector has shown signs of slowing. The services PMI dipped to 50.4 from 50.6 in February, falling short of expectations. This indicates that while manufacturing is gaining traction, the services sector may be facing headwinds. 

Read more: Eurozone annual inflation up to 2.5 percent, March rate cut still likely

Easing inflation pressures

Another bright spot in the latest data is the notable easing of inflationary pressures. The rate of input cost inflation, which reflects what companies pay for materials and services, has slowed to its lowest level since November 2024. This decline in inflation could provide the European Central Bank (ECB) with more flexibility in its monetary policy decisions, potentially paving the way for interest rate cuts later this year if inflation continues to trend toward the ECB’s target of 2 percent.

Diverging economic performance

While Germany’s economy shows signs of recovery, France continues to struggle. The French composite PMI rose to 47.0 in March, still deep in contraction territory, indicating that output has shrunk for seven consecutive months. The French manufacturing PMI improved slightly to 48.9, but the services sector remains under pressure, reflecting ongoing challenges in key industries such as automotive and construction. 

Outlook for the eurozone

The eurozone’s uneven performance, with Germany leading the recovery while France lags behind, highlights the complexities of the region’s economic landscape. However, there is cautious optimism that increased fiscal investment and structural reforms could support longer-term competitiveness. As businesses adapt to changing conditions, the potential for a more sustained recovery remains on the horizon.