Against the odds, and with a little help from an unusually accommodating Old Man Winter, Europe might avoid a recession. The UK probably won’t be as fortunate.

Those were the overarching takeaways from flash reads on S&P Global’s PMIs released on Tuesday. European business activity expanded “marginally” in the opening weeks of the new year, suggesting a “tentative” return to growth following six months of contraction, according to the release.

The flash read on the bloc-wide composite gauge was 50.2, up from 49.3 and a seven-month high. The services gauge likewise blipped back above the demarcation line, while manufacturing activity contracted again, albeit less acutely.

Firms’ outlook improved materially. “Business confidence jumped higher to hint at markedly improving prospects for the year ahead,” the color accompanying the release said. “Employment growth also picked up momentum as firms prepared for a better-than-expected year ahead.”

Does this matter? Well, yes. Actually it does. Although the implied expansion is obviously minuscule, and while acknowledging that for many Europeans, the current situation is the furthest thing from comfortable, recessions across the bloc were seen as a virtual guarantee. Tuesday’s PMI releases underscored the notion that not only was the worst-case scenario averted, the European economy might actually skirt a downturn altogether.

Plainly, the better outcome owes a lot to the mild winter and the sharp drop in natural gas prices. The Kremlin used quite a bit of its leverage last year, and while Europe will be tested again next winter (it’s not exactly as if the energy transition will be complete in 11 months), the evaporation of the war premium in energy prices feels like a godsend.

“The eurozone economy has avoided dramatic scenarios for the winter thanks to an extremely mild December in which gas storages have been depleted much less than feared,” ING’s Bert Colijn said Tuesday.

“The survey suggests a nadir was reached back in October,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, remarked. “Since then, fears over the energy market in particular have been alleviated by falling prices, helped by the warmer-than-usual weather and generous government assistance.”

Given how tragically poor this winter could’ve turned out for Europe, subjecting signs of hope to the “good news is bad news” interpretation vis-à-vis the ECB feels a bit masochistic, but I should note that although input costs continued to recede this month according to the PMIs, average selling prices rose both for goods and services “reflecting still-elevated cost growth and upward wage pressures,” as S&P Global put it. That’ll add to the rate hike impetus.

In Germany, the composite gauge printed a seven-month high, even as it remained just short of the expansion line. The services sector expanded and manufacturing contracted at about the same pace as last month. In France, the composite index printed 49, roughly in line with December, and consistent with a 22-month low on the services gauge. The French manufacturing PMI, on the other hand, notched a surprise expansion.

Also on Tuesday, Berlin was set to upgrade its outlook for Europe’s largest economy, which should expand by about 0.2% this year, which sounds pitiable until you consider that the government’s initial forecast was for a 0.4% contraction.

“Alongside easing supply-chain strains, January’s preliminary survey also pointed to a continued slowdown in rates of inflation,” S&P Global’s Phil Smith said, editorializing around the PMIs for Germany. “However, while underlying cost pressures [are easing] quite rapidly in manufacturing, it’s a different story in services where inflation remains far stickier thanks in large part to the influence of growing wage demands.” Again, it looks as though inflation is finding its way into wage-setting in Europe, which should keep the ECB on its toes.

European equities are off to a galloping start to 2023. The (ongoing) outperformance to US shares is very notable, and could prove misplaced in the event the situation in Ukraine spills over or if market participants eventually lose interest in the economic narrative. Europe’s economy is famously languid, and rate hikes are likely to sap whatever joie de vivre there is.

In the UK, the situation remains tenuous. The flash print on the nation’s composite PMI for January was 47.8, a two-year low and indicative of a faster contraction compared to December. Manufacturing activity improved, albeit while remaining in contraction. The services sector gauge hit a 24-month low.

“Service providers experienced a marked loss of momentum since December, with survey respondents citing higher interest rates and low consumer confidence as key factors that held back business activity,” S&P Global said. The pound retreated and gilts rallied.

Williamson was blunt. “Industrial disputes, staff shortages, export losses, the rising cost of living and higher interest rates all meant the rate of economic decline [in the UK] gathered pace again at the start of the year,” he said, adding that “jobs also continued to be lost as firms tightened their belts, though many other firms reported being constrained by an ongoing lack of available labor.”

If there was a silver lining for the UK, I suppose it was the dovish read-through for the BoE. But even there, average prices charged by private sector companies rose “sharply” this month, “driven by historically strong inflationary pressures and efforts to pass on rising staff wages.” Nevertheless, that “sharp” rise was the slowest in 17 months “thanks” (a misnomer of sorts) to less pricing power tied to slower demand.

Coming back to Europe, ING’s Colijn summed it up: “Sometimes you just need a bit of luck.”