(Bloomberg) -- Euro-area private-sector activity hit an eight-month high, with services and stabilizing numbers across most of the region making up for an increasingly dire situation in German manufacturing.

Data Thursday showed S&P Global’s purchasing managers’ index increased to 48.9 in February, stronger than the 48.4 predicted by economists and the closest to the 50 level that marks expansion since June. That’s all down to services, which unexpectedly stopped shrinking after six months of contraction.

Meanwhile, manufacturing saw a surprise deepening of the slowdown, with Germany to blame. The factory gauge for the region’s biggest economy slumped to the lowest since October, revealing a decline in output alongside plummeting new orders at home and abroad.

“Germany is acting as a brake on euro-zone growth,” said Norman Liebke, an economist at Hamburg Commercial Bank. “While France is recovering more strongly in both the services and manufacturing sectors, Germany is lagging behind.”

The figures highlight the increasing divergence between Germany and the rest of the region, and come amid heightened concerns about the country’s economic performance, which is weighed down by protracted weakness in its outsized manufacturing sector. The government on Wednesday slashed its growth forecast for this year to just 0.2%, after a contraction in 2023.

The currency bloc itself is likely to expand 0.8% in 2024, according to Liebke, who sees a “glimmer of hope as the euro zone inches toward recovery — this is particularly noticeable in the services sector.”

The European Central Bank is counting on its record monetary tightening to tame inflation without too much of a hit on the economy, which just dodged a recession in the second half of 2023.

What Bloomberg Economics Says...

“The broader picture is that while output is struggling to expand, it’s still far from collapsing. That will buy the Governing Council some time before shifting to a more dovish stance. We expect the first interest-rate cut will come in June.”

-David Powell, economist. Click here for full REACT

Markets lowered their expectations for ECB interest rate cuts after the earlier German and French PMI readings, with swap contracts reflecting less than 1 percentage point of reductions through year-end. The German 10-year bond yield traded about 3 basis points higher at 2.48%, pulling back from a jump to 2.51%, while the euro rose as much as 0.6% to 1.0888, its highest in more than two weeks.

Thursday’s euro-area report will offer little solace on prices, as selling-price inflation and growth of average input costs across producers of goods and providers of services both accelerated.

“Output prices have increased at a faster pace for the fourth month in a row,” Liebke said. “This is entirely due to the labor-intensive services sector, which continues to struggle with rising wages.”

A separate gauge for the UK on Thursday showed the highest level of expansion since May, with Britain’s private sector firms at their most optimistic in two years.

Earlier PMI data from Australia and Japan pointed to slight expansion. US figures later are set to show continued growth.

PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.

--With assistance from Joel Rinneby, Mark Evans, Naomi Tajitsu and Tom Rees.

(Updates with Bloomberg Economics comment after seventh paragraph, UK PMIs in 11th paragraph.)

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