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Flash Eurozone PMI at 52.5 in March signals return to growth
Manufacturing expands at record pace, helping offset service
sector weakness
Factory input cost inflation highest since March 2011, as
supplier delivery times lengthen to the greatest extent in the
survey's 23-year history
Rising infection rates threaten outlook
The eurozone economy beat expectations in March, showing a much
better than anticipated expansion thanks mainly to a record surge
in manufacturing output.
The headline IHS Markit Eurozone Composite PMI® rose from 48.8
in February to 52.5 in March, according to the preliminary 'flash'
reading. By rising above 50.0, the latest reading indicated the
first increase in business activity since last September, with the
current expansion the largest recorded since last July and the
second-steepest seen over the past 28 months.
Manufacturing surges but services struggle
Divergent trends were seen by sector. While manufacturing output
growth accelerated sharply to the highest since data were first
available in 1997, the service sector continued to be constrained
by the coronavirus disease 2019 (COVID-19) pandemic, with social
distancing restrictions leading to a seventh successive monthly
fall in business activity.
The service sector therefore remained the economy's weak spot,
but even here the rate of decline moderated in March as companies
benefited from the manufacturing sector's upturn, customers adapted
to life during a pandemic and prospects remained relatively
upbeat.
Germany leads the upturn
The manufacturing upturn was led by a record surge of factory
production in Germany, accompanied by the fastest production growth
since January 2018 in both France and the rest of the region as a
whole.
Germany also outshone in terms of service sector performance,
recording the first (albeit modest) expansion of activity for six
months while France and the rest of the euro area merely saw rates
of contraction moderate.
Looking at growth over both sectors combined, Germany's
resulting upturn was the strongest for just over three years (the
composite PMI rising from 51.1 to 56.8), contrasting with a decline
in France for the seventh successive month (albeit with the index
at 49.5, up from 47.0 in February). The rest of the region saw a
modest return to growth for the first time since last July
(composite index at 50.6 versus 48.2 in February).
Higher inflation
The return to growth was accompanied by a further increase in
price pressures. Average prices charged for goods and services rose
to a degree not seen since January 2019, with goods prices rising
particularly steeply, posting the largest gain for almost a decade.
Prices rose far more modestly in the service sector, yet the
increase was notable in being the first since the pandemic
began.
Higher charges often reflected rising costs. Average input
prices across both manufacturing and services rose in March at the
sharpest rate for a decade. Factory input cost inflation struck the
highest since March 2011, often linked to supply shortages. March
saw supplier delivery times lengthen to the greatest extent in the
survey's 23-year history.
However, service sector input costs also grew sharply, rising at
the fastest pace since February of last year, reflecting higher
materials, food, PPE and fuel prices, plus rising wage
pressures.
Higher costs were observed across the board, with Germany
reporting the steepest increases (and also the most widespread
supply chain delays).
Outlook clouded by further COVID-19 waves
The outlook has deteriorated, however, amid rising COVID-19
infection rates and new lockdown measures, notably in Germany.
The two-speed nature of the economy will therefore likely
persist for some time to come, as manufacturers benefit from a
recovery in global demand but consumer-facing service companies
remain constrained by social distancing restrictions.
While March's rise in the PMI is encouraging, especially in
relation to how the economy has become somewhat resilient to
COVID-19 lockdown measures and social distancing restrictions, the
slow roll-out of vaccines and third waves of infections suggest
that the latest reading may represent a short-term peak.
Chris Williamson, Chief Business Economist, IHS
Markit
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.
