Euro Area: Business activity expands at fastest pace in 10 months in March

Euro Area PMI March 2023

Euro Area: Business activity expands at fastest pace in 10 months in March

The flash Eurozone Composite Purchasing Managers’ Index (PMI) rose to 54.1 in March from 52.0 in February, hitting a 10-month high. Consequently, the index moved further above the 50 no-change threshold, signaling a stronger improvement in business conditions compared to the prior month.

March’s increase was led by a faster expansion in the services sector more than offsetting a slight downturn in manufacturing activity. Activity and new orders rose at a sharper pace in the services sector, while the manufacturing sector experienced a decline in new orders. Moreover, the pace of job creation accelerated. Meanwhile, business confidence weakened but remained comfortably above the levels seen late last year.

On the price front, input inflation fell—especially in the manufacturing sector—thanks to a further easing of supply constraints and cooling demand. Consequently, output inflation decelerated, although it remained elevated, particularly in the services sector.

Commenting on the release, Chris Williamson, chief business economist at S&P Global Market Intelligence, stated:

“The survey is consistent with GDP growth of 0.3% in the first quarter, accelerating to an equivalent rate of 0.5% in March alone. [That said], growth is very unbalanced, driven almost solely by the service sector with manufacturing largely stalled and struggling to sustain production in the face of falling demand.”.

Meanwhile, Bert Colijn, senior economist at ING, said:

“The impact of the recent banking turmoil on the eurozone economy is not yet clear to see, but if problems remain contained we still expect a mild downward effect on economic activity for the coming quarters. That adds to a picture of weak economic growth for the quarters ahead as high inflation and monetary tightening weigh on economic prospects.”

FocusEconomics Consensus Forecast panelists expect fixed investment to expand 0.6% in 2023, which is unchanged from last month’s forecast. For 2024, panelists see fixed investment increasing 2.2%.

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