The HCOB Eurozone Services Purchasing Managers’ Index (PMI) rose to 50.5 in June, indicating a slight recovery from May's reading of 49.7.

Germany's manufacturing PMI reached a notable 49.0, marking a 34-month high, with new orders hitting a 39-month peak, suggesting a potential recovery despite remaining in contraction territory.

A PMI reading above 50 signals expansion, while below 50 indicates contraction, underscoring the delicate state of the Eurozone's economic sectors.

Key risks to this recovery include potential U.S.-EU trade tensions, geopolitical volatility affecting energy costs, and a decline in domestic demand in Germany, where retail sales have dropped by 3% year-on-year.

The uptick in PMI suggests gradual stabilization in manufacturing activity, driven by strong export resilience from the U.S. and cost deflation, presenting investment opportunities in German and Eurozone equities.

Despite a decline in new business, services companies have maintained hiring for four months, continuing a job creation streak lasting nearly 4.5 years.

Business confidence in Germany has risen to its highest level since early 2022, bolstered by expectations of increased infrastructure spending and a potential trade deal between the U.S. and EU.

New orders in the Eurozone stabilized in June, ending a 37-month decline, while export orders also stabilized, signaling potential improvements in future production.

However, French manufacturers reported the fastest pace of new order decline in four months, leading to significant reductions in production activities, particularly in the automotive sector.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, noted that the current weak growth period is the longest recorded in the PMI's 27-year history.

Investors are encouraged to focus on export-heavy sectors with strong order backlogs, such as industrial machinery and automotive components, while navigating the risks associated with trade policies.

Most economists predict that the European Central Bank will implement one more interest rate cut in September 2025, following a year of reductions.