Eurozone growth surprises in July: Is the worst really over?
The Flash Composite Purchasing Managers' Index (PMI) – a closely watched gauge of business conditions – rose from 50.6 to 51.0 in July, hitting its highest level since August 2024 and topping market expectations of 50.8.
Much of the rebound came from the services sector, which continues to lead the bloc's recovery. The services PMI rose to 51.2 from 50.5, beating expectations of 50.7 and marking the fastest expansion since January.
Manufacturing, while still contracting, showed signs of stabilisation. The manufacturing PMI rose to 49.8 from 49.5, the most optimistic print in three years, edging closer to the neutral 50 threshold.
Although factory new orders declined again, the pace slowed and overall production neared equilibrium.
Businesses responded to stronger activity and steadier order books by hiring more staff. At the same time, cost pressures eased.
The pace of inflation dropped to a nine-month low and remained below the historical average.
Economists note steady progress and fading inflation risks
Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank (HCOB), struck a cautiously upbeat tone.
'The eurozone economy appears to be gradually regaining momentum. The recession in the manufacturing sector is coming to an end, and growth in the services sector accelerated slightly in July,' he said.
He added that Hamburg Commercial Bank's GDP Nowcast, which incorporates PMI data, points to 'robust economic growth' in the third quarter.
For the European Central Bank, signs of slowing inflation in services are likely to be welcomed, even if headline pressures persist.
'There is good news for the ECB, as the disinflation trend has continued in the closely watched service sector,' de la Rubia said.
He noted that the stronger euro and US tariffs are likely to exert further downward pressure on prices in the coming months.
Germany edges forward, France lags behind
Regional data continued to reveal diverging trends. Germany recorded a slight increase in output for the second month running, fuelling hopes of a broader recovery.
'We see increasing signs of a recovery in the manufacturing sector,' said de la Rubia, citing supportive policy measures such as more favourable depreciation rules introduced by Berlin on 1 July.
In France, activity contracted once again, though at the slowest pace in the current 11-month downturn.
'The latest HCOB Flash PMIs from France are neither fish nor fowl,' said Jonas Feldhusen, Junior Economist at Hamburg Commercial Bank.
'While momentum has been trending upward since the beginning of the year, the index remains below the critical 50-point threshold.'
Eurozone equities rally amid looming US-EU trade deal
Hopes for a looming US-EU trade deal, which could lock in a 15% tariff on European exports to the US, lifted investor sentiment on Thursday, fuelling a rally in European equities as markets looked past fears of harsher trade barriers.
The STOXX 50 rose nearly 1%, while the broader STOXX 600 gained 0.7%, reflecting renewed confidence across the region.
Among standout performers, Deutsche Bank surged over 6% after reporting a better-than-expected second-quarter profit, reversing last year's loss. BNP Paribas also positively surprised, rising 3% after beating forecasts on both revenue and earnings.
Meanwhile, LVMH Moët Hennessy Louis Vuitton slipped almost 2%, with investors bracing for a potential decline in quarterly sales as headwinds continue to weigh on the luxury sector.
In currency markets, the euro held steady at 1.1765 against the dollar, as all eyes turned to the European Central Bank.
The ECB is widely expected to keep its deposit rate unchanged at 2.00% when it announces its latest policy decision later in the day.
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