Eurozone PMIs: German Factory Revival Masks Underlying Stagnation 🇪🇺

The flash Eurozone Manufacturing PMI came in slightly below expectations (51.9 vs 52 forecast; previous: 51.4; revised: 52), nevertheless remaining at a level pointing to sector expansion (50+). The biggest surprise in the report is the largest increase in output in nearly 4 years, although divergence among key economies remains deep.

European industry finds its footing

The flash reading for August confirms reviving momentum in European manufacturing, and the indicator holding above 50 for the seventh consecutive month highlights the sector's exceptional resilience to geopolitical turbulence stemming from the war in the Middle East. While demand, particularly domestic, remains far from dynamic and new orders are growing very slowly despite the presence of so-called “geopolitical frontloading” (i.e., mass order placement to reduce uncertainty), the clearing of backlogs helped boost factory output once again.

Chart 1. Manufacturing PMI in Germany, France, and the Eurozone.

Source: XTB Research, Macrobond data

Is Germany pulling European manufacturing again?

Among the Eurozone's four largest economies, Germany delivered the most solid performance, recording its highest PMI reading since 2022 (matching the previous peak from last March). Price pressures are currently the mildest since the outbreak in the Middle East, and production was once again supported by strong exports—partially tied to frontloading—though demand growth primarily occurred in Asia and the Americas. Conversely, the drop in intra-European demand weighed heavily on index readings in France and Spain, while Italy saw no major changes.

Despite Germany's leading role in Europe's macroeconomic survey data, hard data continues to point to stagnation. Since the beginning of the year, industrial production growth was recorded only in April (+0.4% YoY), whereas the latest figures for May showed a decline in both monthly (-0.2% MoM) and annual (-1.2% YoY) terms. Despite production data being clearly lagged, the real economy has, nevertheless, a long way to go to break the downward trend and catch up with the surge in enthusiasm seen in survey data. However, fierce price competition from China and high commodity prices remain key obstacles.

Chart 2. Industrial production and manufacturing sentiment in the Eurozone.

Source: XTB Research, Bloomberg data

Technical Analysis: EUR/USD (D1)

EUR/USD opened today with a 0.15% gap up, but enthusiasm surrounding the return of Iran and the US to negotiations quickly evaporated. Lacking concrete details and awaiting the US ISM Manufacturing report (at 4:00 PM CET), the market pulled the euro-dollar pair back toward Friday’s close (1.1530). However, the exchange rate held above the 100-day exponential moving average (EMA100; dark purple), indicating a residual impact from the marginally lower-than-expected European PMIs. Currently, the market is pricing in only one US interest rate hike before the end of 2026, and only a distinctly better-than-expected ISM reading with a strong price/inflation component could expose EUR/USD to another test of the EMA100.

Source: xStation5

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Aleksander Jabłoński

Financial Markets Analyst, XTB