Eurozone PMI tops 50 in August, signals fragile recovery

The eurozone manufacturing sector has returned to expansion in August 2025, ending more than two years of decline. The HCOB Eurozone Manufacturing PMI, compiled by S&P Global, rose to 50.7 from 49.8 in July, surpassing the 50 threshold for the first time since June 2022. The improvement was fuelled by the sharpest increase in factory output since March 2022 and the first monthly rise in new orders in almost three-and-a-half years.

Growth was largely driven by stronger domestic demand, while new export sales fell for the second consecutive month. Production recorded a sixth successive monthly increase, with output growth accelerating to its fastest pace in over three years.

Despite this, operating capacities remained underutilised as backlogs of work declined for the 39th straight month. Employment cuts continued across the sector but were marginal and among the softest in the current 27-month sequence, S&P Global said in a media release.

Country-level trends showed widespread expansion across the bloc. Greece topped the growth rankings, followed closely by Spain, both registering strong upturns. France and Italy saw slight expansions after recent weakness, while the Netherlands and Ireland recorded modest improvements.

Germany, the region’s largest economy, signalled broadly stable operating conditions, posting a 38-month high. Austria’s downturn also eased to only marginal levels.

Inventory levels across the eurozone fell at the fastest rate since March, with both pre- and post-production stocks reduced. Purchasing activity also dropped more rapidly, although the decline remained softer compared with the average over the past three years. At the same time, supply chain pressures intensified, with input lead times lengthening to their worst since November 2022.

Price trends showed a marginal rise in input costs, marking the first increase since March, while output charges were slightly reduced as firms sought to remain competitive.

Looking ahead, manufacturers maintained cautious optimism. Growth expectations held just above the long-term average, with sentiment broadly unchanged from July, reflecting improved domestic demand but ongoing pressures from weak exports and strained supply chains.

“Incoming orders also offer hope for a sustainable recovery. After over three years of continuous declines, companies are now seeing a slight increase. Domestic orders have risen and are offsetting the weakening demand from abroad. In fact, the best remedy against US tariffs may be to strengthen domestic demand, including within the EU internal market. The potential is significant, as the International Monetary Fund estimates that the tariff equivalent of the many non-tariff trade barriers in the EU stands at 44 per cent. Companies may be hoping for progress here, as a certain optimism has taken hold. Many expect to produce more in 12 months than they do today,” said Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, commenting on the PMI data.

“The recovery is real but remains fragile. Inventory levels continue to decline, and the slightly accelerated drop in order backlogs shows that companies are still suffering from uncertainty. Given US tariff policies and geopolitical tensions, this is hardly surprising. We see the fact that production is being ramped up and more orders are being registered in this environment as a sign of resilience” Rubia concluded.

ALCHEMPro News Desk (HU)