“In the final month of Q1 eurozone private sector activity increased further on the back of rising optimism in the German manufacturing sector as higher fiscal spending brightens Germany’s growth outlook. Consensus expected a slightly higher composite PMI. The PMIs have now remained in expansionary territory for the full first quarter consistent with our expectation of GDP expanding by 0.3% in Q1 on the back of strong domestic demand due to rising real incomes and frontloading effects stemming from expected US tariffs. Indeed, the improvement in the eurozone manufacturing sector, moving closer to neutral levels, pushed up the eurozone composite PMI, while the expansion in the services sector moderated. The manufacturing sector stands to gain from higher growth prospects as rising defence spending and fiscal largesse in Germany raise future demand for industrial goods. Particularly in Germany, weak domestic demand has been one factor contributing to the industrial malaise. In addition to the anticipated rise in future demand, temporary factors have driven up current output. With the output component entering expansionary territory for the first time since March 2023, the eurozone industrial sector may also be benefiting from US customers accelerating their eurozone industrial orders ahead of potential tariffs.”
Morten W. Langer
