Germany's Fledgling Economic Recovery Continues in Feb.

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Germany’s economy expanded modestly in February, as steady growth in the services sector and a slower decline in manufacturing output lifted overall business activity, a survey showed on Wednesday.

The HCOB Flash Germany Composite PMI, compiled by S&P Global, rose to 51.0 from 50.5 in January, hitting a nine-month high and signalling a second consecutive month of expansion in the eurozone’s largest economy.

The consensus had expected a recovery to 50.8, making this a welcome beat for markets.

The all-important manufacturing sector showed signs of stabilization, with the PMI rising to 46.1 from 45.0, the highest reading in two years, though still in contraction territory.

"The manufacturing sector is still struggling, but things are looking up," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. "The recession has been easing for two months, and the output index is approaching the expansionary threshold of 50."

The improving fortunes in Germany contrast with France's, where PMI data suggests the economy has lurched into recession.

Germany's services sector remained the primary growth driver, though its PMI eased slightly to 52.2 from 52.5 in January, reflecting a more moderate expansion.

New business declined at the slowest rate in nine months, while export orders fell at the weakest pace since May 2024, suggesting that demand pressures may be bottoming out.

Employment showed mixed trends, with job losses in manufacturing outweighing modest hiring in services. This led to a slight decline in the overall workforce.

Inflationary pressures eased slightly, with input cost growth slowing from January’s 22-month high. However, services firms continued to face rising labour costs, keeping price pressures elevated.

"While the economy is on a growth path, the outlook is clouded by external risks, particularly potential U.S. tariffs and geopolitical uncertainty," de la Rubia said.

With demand stabilizing and services maintaining momentum, Germany’s economy appears to be gaining traction, though concerns over inflation and global trade risks remain.

"One thing is certain: Europe — and Germany in particular — is in Mr Trump's sights. Germany not only runs a large trade surplus with the US but has also underspent on defence for decades, two grievances the current administration no longer tolerates," says Karsten Junius, Chief Economist at J. Safra Sarasin.