A stronger-than-expected rise in services and manufacturing suggests Europe’s economy may be regaining momentum, though energy risks and global uncertainty continue to cloud the outlook.

The eurozone economy showed fresh signs of resilience in July, with business activity returning to growth for the first time in four months, according to the latest S&P Global flash Purchasing Managers’ Index. The composite PMI rose to 51.9, its highest level in five months, comfortably above the 50-point threshold that separates expansion from contraction.

The rebound was stronger than analysts had expected and was supported by a recovery in new orders, improved staffing levels and firmer output across both services and manufacturing. Manufacturing output reached its strongest level in more than four years, while services activity also climbed to a five-month high, pointing to a broader improvement across the currency bloc.

Germany, the eurozone’s largest economy, returned to growth, while the downturn in France eased. Other eurozone economies also recorded their strongest expansion in eight months, suggesting that the region entered the third quarter with better momentum than many forecasters had anticipated.

The figures may offer some relief to policymakers at the European Central Bank, which has been balancing weak growth against persistent inflation pressures. Slower price increases in the PMI survey could reduce immediate pressure for tighter monetary policy, although risks remain elevated. Energy prices, geopolitical tensions in the Middle East and fragile export demand continue to threaten Europe’s recovery.

Despite the positive signal, economists remain cautious. Export orders continued to decline, showing that external demand remains weak at a time when global trade is under pressure from tariffs, higher borrowing costs and renewed concerns over energy markets. Europe’s recovery, while encouraging, remains vulnerable to shocks that could quickly revive inflation and weigh on household and business confidence.

For now, July’s data suggest that the eurozone may be moving away from stagnation. But the recovery is still uneven, and its durability will depend on whether domestic demand can keep improving without being derailed by another surge in energy costs or a renewed slowdown in global trade.