Euro zone business activity returns to growth in March -PMI

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Euro zone business activity returned to growth last month, underpinned by a record expansion in the manufacturing sector, according to a survey on Wednesday that showed the service industry was coping with new lockdowns better than expected.

As Europe battles a third wave of coronavirus infections, governments have re-imposed restrictions on citizens and forced swathes of the dominant services industry to remain closed.

But IHS Markit’s Services Purchasing Managers’ Index (PMI) rose to 49.6 in March from February’s 45.7, much higher than a flash estimate of 48.8 and only just shy of the 50 mark that separates growth from contraction.

A composite PMI, combining both manufacturing and services and seen as a good gauge of economic health, rose to 53.2 from 48.8, above the 52.5 preliminary estimate.

“The economy has weathered recent lockdowns far better than many had expected, thanks to resurgent manufacturing growth and signs that social distancing and mobility restrictions are having far less of an impact on service sector businesses than seen this time last year,” said Chris Williamson, chief business economist at IHS Markit.

Factory activity growth galloped at its fastest pace in the near 24-year history of its PMI in March, a sister survey showed last week, although supply chain disruptions and renewed lockdowns in the region could rein it in soon.

Supply issues led to a big jump in input costs for services firms and they increased their prices for the first time in just over a year. The output prices index rose to 50.5 from 48.1.

Still, a pick-up in euro zone inflation is unlikely to be sustained and a slow recovery from a pandemic-induced recession will keep price growth under the European Central Bank’s target for years, a March Reuters poll found.

Despite a slow vaccine roll-out and a surge in reported coronavirus infections, optimism about the year ahead improved. The composite future output index rose to 67.9 from 67.0, its highest since February 2018.

“This resilience suggests not only that companies and their customers are looking ahead to better times, but have also increasingly adapted to life with the virus,” Williamson said.

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