Germany's economic momentum ticked higher in February 2025 as manufacturing's drag on growth lessened and services maintained expansion. The flash Germany composite PMI rose to 51.0, a nine-month high, signalling a second consecutive month of private sector growth.

While the services sector led the expansion (at 52.2 and 0.3 points below the consensus), its growth pace slowed slightly. At the same time, manufacturing showed signs of recovery, with its PMI climbing to 46.1, 0.6 points above the consensus and the highest in 24 months. Demand conditions stabilised, with new orders and export businesses contracting at their weakest pace in nine months.

Labour market trends divergedservices firms expanded their workforce, but manufacturing job cuts deepened, leading to a modest employment decline. Meanwhile, input cost inflation eased, particularly as manufacturing firms faced falling purchase prices, though higher labour costs kept services inflation elevated.

Despite these improvements, business confidence weakened, falling below the long-term average due to geopolitical uncertainties and tariff concerns. While manufacturing's downturn is softening, and services remain resilient, the economic recovery remains fragile, dependent on sustained demand and price stability in the coming months. The latest update leaves the German RPI at 10 and the RPI-P at 25, meaning that economic activities are generally ahead of market expectations in the German economy.

Manufacturing is seen at 45.5 versus 45.0 and services flat at 52.5.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of around 1,000 manufacturing and service sector companies. The flash data are released around ten days ahead of the final report and are typically based upon around 85 percent of the full survey sample. Results covering a range of variables including manufacturing output, employment, new orders, backlogs and prices are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The report also contains flash estimates of the manufacturing and services PMIs. The data are produced by S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.