08:28 AM EDT, 03/25/2025 (MT Newswires) -- In the final month of Q1, eurozone private sector activity increased further on the back of rising optimism in the German manufacturing sector as higher fiscal spending brightens Germany's growth outlook, said ABN Amro.

Monday's eurozone composite PMI for March moved further into expansionary territory at 50.4, up from 50.2 in February.

Consensus expected a slightly higher composite PMI, wrote the bank in a note. The PMIs have now remained in expansionary territory for the full Q1 consistent with ABN Amro's expectation of gross domestic product expanding by 0.3% in Q1 on the back of strong domestic demand due to rising real incomes and frontloading effects stemming from expected United States tariffs.

Indeed, the improvement in the eurozone manufacturing sector, moving closer to neutral levels, pushed up the eurozone composite PMI, while the expansion in the services sector moderated. The manufacturing sector stands to gain from higher growth prospects as rising defense spending and fiscal largesse in Germany raise future demand for industrial goods, stated the bank.

Particularly in Germany, weak domestic demand has been one factor contributing to the industrial malaise. In addition to the anticipated rise in future demand, temporary factors have driven up current output. With the output component entering expansionary territory for the first time since March 2023, the eurozone industrial sector may also be benefiting from U.S. customers accelerating their eurozone industrial orders ahead of potential tariffs, pointed out ABN Amro.

Zooming out, the PMI improving and moving further into expansionary territory is consistent with the bank's GDP forecast for Q1. ABN Amro has pencilled in a 0.3% quarter-over-quarter rise in GDP in Q1 of 2025 after a rise of 0.2% quarter over quarter in the final quarter of 2024.

High wage growth and easing inflation should further consumption, while exports stand to benefit temporarily from the already-mentioned frontloading effects, according to the bank.