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Eurozone business activity growth slowed in March as the
economic impact of Russia's invasion of Ukraine offset a boost to
demand from the further reopening of the economy from COVID-19
restrictions.
Firms costs and average prices charged for goods and services
rose at unprecedented rates as commodity prices surged higher and
supply chain delays hit the highest since last November. Falling
exports meanwhile led a renewed cooling of demand and business
confidence sank to the lowest for nearly one and a half years as
companies grew increasingly concerned about the outlook.
Thus, although the survey's indicators of current output beat
consensus expectations, the details of the PMI sub-indices reveal a
considerably darker economic outlook compared to that seen in
February, tilting the risks firmly towards slower growth and higher
inflation in the months ahead.
Business growth slows as invasion offsets covid
boost
The headline S&P Global Eurozone Composite PMI® fell from
55.5 in February to 54.5 in March, according to preliminary 'flash'
estimate*. The reduction indicates some loss of economic growth
momentum from February's five month high but still signals the
second-strongest expansion since November. The rate of expansion
also remained above the survey's pre-pandemic long-run average and
broadly indicative of GDP rising at a quarterly rate of just over
0.5%.
While firms - notably in the service sector - continued to
benefit from resurgent demand linked to the further reopening of
the economy from COVID-19 containment measures, companies also
reported that the Ukraine war and accompanying sanctions had led to
weakened demand, rising uncertainty, higher costs and renewed
supply chain issues.
Manufacturing output growth waned most sharply, dropping to the
lowest since last October as new orders placed with eurozone
factories rose at the slowest pace since the recovery from the
first pandemic lockdowns began in July 2020. New export orders for
goods fell for the first time in 21 months.
Business activity and new orders in the service sector also rose
at reduced rates compared to February's rebound, led by a renewed
drop in service sector exports, though the overall expansions
remained well above the long-run averages thanks principally to the
easing of pandemic restrictions. March saw virus containment
measures ease across the eurozone to the lowest since the pandemic
began.
Record price rise
A major impact of the war was evident on prices, with the
invasion of Ukraine widely linked to a further rise in companies'
costs, exacerbating existing supply and demand imbalances and
causing a surge in energy prices. Average input prices across both
manufacturing and services rose at a rate far in excess of any
previous increase recorded since comparable data were first
available in 1998. The eurozone PMI input cost index reading of
81.6 compared to 74.8 in February and a prior peak of 76.0 seen
back in November. A record increase for service sector input costs
was accompanied by the steepest rise in manufacturing input costs
since the near-record increases seen late last year.
The record increase in raw material and energy input costs,
combined with further upward pressure on wages, drove an
unprecedented rise in average prices charged for goods and services
in March, with rates of inflation reaching new highs in both
manufacturing and services.
The Ukraine war and sanctions on Russia were also widely
reported to have led to a worsening of supply chain delays,
aggravating pandemic-related supply disruptions, including new
delays from China amid fresh lockdowns. Having shown signs of
moderating in February, average supplier delivery times lengthened
in March to the greatest extent since last November.
Outlook
An additional impact of the invasion was evident on business
sentiment, as tracked by the PMI's future output expectations
index, which fell in March to its lowest since October 2020.
Expectations of output in the coming year fell to the lowest since
November 2020 in the service sector, and down to the lowest since
May 2020 in manufacturing. Backlogs of work, another indicator of
future business activity, meanwhile rose at the slowest rate for a
year.
The survey data therefore underscore how the Russia-Ukraine war
is having an immediate and material impact on the Eurozone economy,
and highlights the risk of the eurozone falling into decline in the
second quarter.
Had it not been for the easing of COVID-19 containment measures
to the lowest since the start of the pandemic, business activity
would have weakened far more sharply in March. This short-term
boost from the rebound will likely fade in coming months.
Meanwhile, the war has aggravated existing pandemic-related price
pressures and supply chain constraints, leading to record inflation
rates for firms' cost sand selling prices, which will inevitably
feed through to higher consumer prices in the months ahead.
Businesses are themselves bracing for weaker economic growth,
with expectations of future output collapsing in March as firms
grow increasingly concerned about the Impact of the war on an
economy that is still struggling to find its feet from the
pandemic.
While the headline indicators on current output from the PMI
survey may have beaten expectations, the detail reveals a
significantly darker economic outlook compared to February,
signalling slower growth and higher inflation in the months
ahead.
Chris Williamson, Chief Business Economist, S&P
Global Market Intelligence
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
At the same time, business costs increased at historically elevated rates, with new record levels of cost inflation… https://t.co/ofDaBfq7KX
May 25
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