Euro Area: Business activity growth decelerates less than expected in March amid the Russia-Ukraine war

Euro Area PMI March 2022

Euro Area: Business activity growth decelerates less than expected in March amid the Russia-Ukraine war

The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by S&P Global, dropped to 54.5 in March from 55.5 in February, beating market expectations. Therefore, the index remained comfortably above the 50 no-change threshold, signaling a continued improvement in business conditions.

March’s decline was led by decelerations in both manufacturing and services sector activity, although the negative impact from the Russian invasion of Ukraine was limited by growing demand stemming from the further relaxation of Covid-19 restrictions. Meanwhile, supply chain delays lengthened, while business confidence tanked to the lowest level in nearly one-and-a-half years amid worsening worries regarding the economic outlook. On the price front, input and output costs soared at record rates amid surging commodity prices and snarled supply chains.

Assessing the Eurozone’s two largest economies, growth in business activity strengthened in France while it softened but remained strong overall in Germany.

Commenting on the release, Bert Colijn, senior economist at ING, stated:

“Businesses have clearly been impacted by the surge in energy prices seen since the war started. Both input and output prices surged at a record pace in March. This suggests a broadening of inflation as even higher energy prices are causing passthrough effects to happen more quickly than expected. We already expect inflation to soar above 7% in March and think that prices are set to increase further in April. The impact on consumer purchasing power will be sizable and dampen consumption expectations as already reflected in the plunging consumer confidence figures.”

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