Germany's final manufacturing PMI for February rose to 50.9, up from the preliminary 50.7 and a previous reading of 49.1. This marks the first time in over three-and-a-half years that the index has exceeded 50, signaling expansion. Key drivers included increased output, new orders, and export demand, with intermediate and capital goods sectors leading the growth. However, input prices surged in February, driven by rising costs in metals, energy, wages, and the new Carbon Border Adjustment Mechanum (CBAM), which may have compressed profit margins despite some cost pass-through to customers. For markets, the data suggests a potential structural shift in Germany's manufacturing sector, driven by government infrastructure spending and defense investments. The rise in domestic demand over exports indicates a shift in economic dynamics, which could influence European Central Bank (ECB) policy expectations. Traders may also monitor how input cost pressures affect inflation trajectories and corporate profitability in the region. Looking ahead, the focus will be on whether the PMI expansion sustains into Q1 and how policymakers respond to rising input costs. For global investors, the resilience of German manufacturing amid global economic uncertainty could provide a positive tailwind for European equities and the euro. Key assets to watch include EUR/USD and European equity indices.
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