Europe’s economy showed fresh signs of life this week as new business activity expanded for the first time in four months, offering companies and investors a welcome signal that demand may be stabilizing despite continued geopolitical uncertainty.
The latest S&P Global Flash Purchasing Managers’ Index (PMI), released Friday, climbed to 51.9 in July from 50.0 in June, beating economists’ expectations and moving back above the 50-point level that separates economic growth from contraction. Manufacturing posted its strongest output in more than four years, while the services sector also returned to expansion.
For businesses, the improvement could translate into stronger customer demand, healthier supply chains and a more stable environment for hiring and investment after months of sluggish growth.
One encouraging month doesn’t erase the challenges, but it does suggest Europe’s economy is finding its footing again.
Germany, the euro area’s largest economy, returned to growth after four months of contraction, while France remained weak but showed signs of stabilizing. New orders increased at the fastest pace since April 2023, giving companies reason to believe the recovery could continue if geopolitical conditions remain stable.
The rebound also arrives as inflation pressures begin to ease. Businesses reported slower increases in both input costs and prices charged to customers, a trend that could reduce pressure on the European Central Bank as it weighs future interest-rate decisions.
Energy prices remain the biggest wildcard.
Economists caution that renewed tensions in the Middle East could quickly reverse recent gains by driving oil and natural gas prices higher, raising costs for manufacturers, transportation companies and consumers across Europe.
For global companies—including many U.S. exporters—the stronger European economy is encouraging news. A healthier euro-zone economy can support international trade, improve demand for American goods and services, and provide another source of global economic growth at a time when businesses continue navigating inflation, tariffs and geopolitical risks.
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