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(Bloomberg) — German business activity unexpectedly expanded for the first time since March, though the latest escalation in the Middle East could yet derail the euro zone’s top economy.
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S&P Global’s Composite Purchasing Managers’ Index increased to 51.2 in July from 49.5 the previous month, rising above the 50 threshold separating expansion from contraction. Analysts had anticipated a more modest increase to 49.7.
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The boost was driven by manufacturing, which jumped to 52.2 — also its strongest reading in four months. The services sector also improved, though it stayed in contractionary territory, according to gauge based on surveys conducted July 9-22.
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“The German economy made a positive start to the third quarter,” Phil Smith, an economist at S&P Global Market Intelligence, said Friday in a statement. “Given the escalating hostilities in the region in the past week or so, which have put renewed upward pressure on global energy prices, the path to a sustainable recovery still seems very much uncertain.”
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Despite Friday’s surprisingly good PMI data, Europe’s largest economy is on track for another year of lackluster expansion after the Middle East conflict dashed any hopes of a meaningful rebound. Both the government and Bundesbank now expect only 0.5% growth, mainly driven by higher public infrastructure and defense spending.
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Chancellor Friedrich Merz, who predicted that 2026 would be a “year of growth,” unveiled measures earlier this month that led to greater optimism among investors and June’s Ifo index already showed a slightly brightened business outlook.
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Still, costlier borrowing presents another headwind for the continent as a whole after the European Central Bank raised interest rates in June for the first time in almost three years. On Thursday, it left them unchanged but kept the option open for another hike, probably in September.
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PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.
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Euro-zone data will arrive later on Friday.
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—With assistance from Mark Evans, Harumi Ichikura and Joel Rinneby.
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English (US)