Eurozone's economy shows signs of revival: Manufacturing downturn eased in February, inflation falls for the first time in five months.

A survey released on Monday showed signs of further easing of the prolonged weakness in manufacturing in the eurozone last month, as demand fell at the slowest pace in nearly three years. The HCOB Eurozone Manufacturing PMI for February, compiled by S&P Global, jumped to 47.6, higher than the expected 47.3, and closer to the watershed of 50. The index has been below 50 since mid-2022, but rose to 46.6 in January after dropping in December last year. However, Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said, "It is too early to call it a recovery now, but the PMI suggests that manufacturing may be finding a foundation. New orders are declining at the slowest pace since May 2022." The new orders index, which measures demand, rebounded from 45.4 to 47.7. The output index, which monitors production, soared from 47.1 to a 9-month high of 48.9, though still in contraction territory. This index is seen as an indicator of overall health the composite PMI will be released on Wednesday. The pace of factory layoffs has indeed accelerated, but they remain hopeful about the prospects for the coming year. Cyrus said, "Most companies remain optimistic about the future. The confidence index is slightly above the long-term average level. This is surprising considering the threat of tariffs from the United States." Meanwhile, in February, the annual inflation rate in the eurozone cooled for the first time in five months, which is reassuring news for policymakers at the European Central Bank. The easing of inflation in the eurozone strengthens confidence that it is nearing the 2% target. Data from Eurostat shows that the initial estimate of the annual CPI rate in the eurozone for February was 2.4%, down from 2.5% in January. While still high, service sector inflation, which policymakers have been particularly concerned about, has dropped to 3.7%, the first significant decrease since April 2024. As the European Central Bank enters the final stage of its rate-cutting cycle, the increasing internal policy disagreements among ECB policymakers will make decisions in the coming months, especially in the remaining months of this year, become overly complicated. Overall, a rate cut this week is a "high probability event," with the interest rate futures market widely expecting a 25 basis point cut to -2.5% on March 6, but this may be the last easy step for the ECB's 26 core policymakers to agree on the magnitude and speed of future rate cuts - the debate over the extent and pace of future rate cuts has heated up recently. ECB officials had previously stated that they would continue to achieve their price target in the coming months, with the latest data further dispelling their doubts. The ECB has already cut rates five times since June last year and is almost certain to cut rates again this week. Analysts expect consecutive rate cuts until the deposit rate reaches -2%. However, investors believe that there may be a pause in rate cuts in April.