European industrial machines are trying to turn on the first gear. Germany and France have not fired yet
July data on PMI indicators from the euro area show improvement, but still balancing on the border of expansion. It is difficult to talk about a clear economic recovery, although it should be noted that they point to higher readings in the euro area, with a better sentiment in Germany and carefully improvement in France, i.e. the two most important motorboats of the EU economy.
The combined PMI indicator for the euro area in July adopted a value of 51 points – so more than in June when it showed 50.6 points. Such a result means a minimal expansion of economic activity in Euroland and the highest reading since August last year, which is behind a clearer revival in the service sector. The industry is trying to turn on the first gear, but the readings in this sector for Germany and France remain below the threshold of 50 points.
However, it is worth paying attention to the upward trend from recent months. Since the beginning of the year, we have been observing the PMI index for the manufacturing sector, which in July increased to 49.8 against 49.5 points in June. This is still the result signaling a decrease in economic activity, but it progresses much slower than half a year ago.
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The “service” PMI is growing, which in May amounted to 49.7 points, in June it increased to 50.5 points, and in July it rose to 51.2 points, above the forecast at 50.8 points. At the same time, 50 points in the case of PMI indicators is a limit value. Above they talked about economic expansion in a given sector, and below about its contract.
“The euro area economy seems to gradually regain dynamics. The recession in the manufacturing sector is coming to an end, and the increase in the service sector has slightly accelerated in July. Our report of GDP Nowcast, which also includes the PMI HCOB Flash indicator, indicates a solid economic growth in the third quarter. However, you should wait for further data before this assessment is too much importance” – we read in the commentary of Cyrus de la Rubio, the chief economist of Hamburg Commercial Bank.
Industry engines are trying to move forward
Data for July indicate a better sentiment in Germany and a more careful reflection in France. This may not be a signal of a return to permanent growth, but the declines have slowed down and the first signs of reconstruction of economic activity at the turn of the holidays appear. In Germany, the service sector signals a return to growth and improving moods. Reading at the level of 50.1 points is slightly better than forecasts (50.0) and clearly higher than before (49.7 points). The industry is still fighting stagnation (49.2 points), however, slowdown in declines and increase in production (49 points before) suggest impending stabilization. The total indicator was 50.3 points against the estimated 50.7 points and 50.4 points before, giving moderate foundations for optimism in the second half. 2025.
In turn, in France, both services and industry are below the expansion threshold, although the rate of declines clearly slows down. Low demand and political uncertainty still remain a key challenge. For the service sector, the reading was 49.7 points, i.e. slightly above forecasts (49.6 points) and indications a month earlier (49.6 points). In turn, PMI rose to the industry to 48.4 (from 48.1 in June), but it still reflects the poor activity of the sector, as indicated by forecasts (48.4 points). The total result is 49.6 points against 49.2 points before and forecast of 49.1 points.
“In Germany, a slight economic growth is expected in July, while a slight decrease is expected in France. This contrast is probably partly due to the political situation. In France, it is characterized by a plan of drastic budget cuts and a vote of distrust against Prime Minister François Bayrou. In Germany, however public ” – we read in the commentary to the results.
In summary, the euro area continues to be careful, and the economy is trying to leave the long -term period of stagnation. The service sector begins to be the motorbike of slight growth against the background of gradual stabilization in industry. These data show that you can look more optimistic at the climate in the Eurostrefa economy at the beginning of the second half of 2025.
Michał Kubicki
