Eurozone PMI: Germany Leads Rebound, France Still Contracts

Eurozone economic momentum accelerated in October as a rebound in services lifted the composite PMI to 52.2, its highest level since May 2023. The improvement marks a tentative shift away from stagnation, with Germany leading the recovery and France lagging behind. German services activity surged to 54.5, while manufacturing climbed closer to the neutral 50 mark, signalling expanding output and rising new orders. France, in contrast, saw its composite PMI fall to 46.8, highlighting continued contraction in both services and manufacturing.

Economists interpret the data as evidence of a gradual but uneven upturn across the bloc. Household consumption has stabilised, energy prices have eased, and export orders outside the EU have gained traction. Yet business sentiment remains fragile, and core inflation pressures persist, tempering optimism. The euro (EURUSD 1.093) traded steady as investors digested the data, while 10-year German Bund yields hovered near 2.31%. Equity markets reacted positively, with the STOXX 600 (SXXP) rising 0.6%, led by financials and construction stocks anticipating a softer monetary stance next year.

Forecasts for Eurozone GDP growth now cluster around 0.8 percent for 2025, improving to roughly 1 percent if credit conditions loosen and fiscal consolidation remains gradual. However, firm wage growth and core inflation near 2.6 percent limit room for early rate cuts. Analysts expect the European Central Bank (ECB) to maintain its 4 percent policy rate through mid-2026, focusing on balance-sheet normalisation before easing.

While the PMI surge signals renewed vitality in the bloc’s services engine, persistent divergence between Germany’s resilience and France’s weakness underscores an incomplete recovery—one that policymakers must nurture without reigniting inflation.