Eurozone Business Activity Stalls in February, Heightening Stagnation Concerns

Key Points:

* Eurozone Composite Purchasing Managers' Index (PMI) edges higher to 50.2, hovering near the expansion-contraction threshold.
* Manufacturing sector weakness is offset by marginal growth in services, indicating lack of significant recovery.
* German PMI beats expectations, suggesting some improvement ahead of elections.
* French data disappoints with a drop in PMI to 44.5, reflecting a poor showing in services.
* ECB remains on track to ease interest rates amid persistent inflation pressures and political uncertainties.

Analysis:

Business activity in the eurozone continued to struggle in February, with the latest PMI figures reinforcing fears of ongoing economic stagnation. The Composite PMI held steady at 50.2, just above the 50 mark that separates expansion from contraction. While the manufacturing sector continued to contract, growth in services remained anemic.

Germany emerged as a relative bright spot, with its composite PMI rising to 51. Analysts attributed this improvement to anticipation of a change in government after Sunday's election. However, French data raised concerns, with the composite PMI indicating a contraction in services.

Despite the lackluster growth, inflation remains a key concern for the European Central Bank (ECB). Service-sector inflation gauges across the region either increased or remained elevated, suggesting that price pressures are returning.

The ECB is expected to continue its interest rate cuts this year, with markets pricing in 78 basis points of easing. However, Executive Board member Isabel Schnabel has cautioned that the central bank may need to pause or halt rate reductions after several cuts since last June.

Purchasing Manager Indexes (PMIs) provide early insights into economic trends and are closely watched by markets. While they can be difficult to directly translate to GDP growth, they indicate the overall direction of business activity.

Overall, the latest PMI data suggests that the eurozone economy remains fragile, facing headwinds from manufacturing weakness, political uncertainty, and geopolitical tensions. The ECB's continued monetary easing and the upcoming German election may provide some support, but broader growth concerns persist.