Another mild winter and well-filled gas supplies have pushed natural gas prices in Europe to their lowest level since the second quarter of 2021. This not only helps to further reduce inflation, but also provides tailwind for the euro area economy. Sentiment indicators continue to rise, albeit from a low level. Therefore, the composite PMI indicator rose to an eight-month high in February, but remains below the boom-or-bust mark of 50. The German Ifo indicator also recorded slight progress in February. However, the weakness of the German economy continues to weigh on overall growth in the Eurozone.
The divergence between manufacturing and services remains, with manufacturing still struggling with inventory overhang, while services activity is accelerating on the back of good consumer demand. According to the PMI survey, employment in the euro zone rose for the second month in a row in February, although this was entirely due to stronger hiring in the services sector. However, the correction in inventories should be completed by the summer, ushering in a recovery in the manufacturing sector, while the negative impact of higher interest rates on the construction sector should gradually fade. In fact, Eurozone lending figures for January show credit growth is still weak, but the downturn appears to be behind us and month-on-month figures even show slight growth.
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