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Eurozone economy returns to growth for 1st time in 6 mnths: IHS Markit

02
Apr '21

Pic: IHS Markit

The eurozone economy beat expectations in March, showing a much better than anticipated expansion thanks mainly to a record surge in manufacturing output, according to London-based information provider IHS Markit, whose headline Eurozone composite purchasing managers’ index (PMI) in the preliminary 'flash' reading rose from 48.8 in February to 52.5 in March.

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.

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, IHS market said in a press release.

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.

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).

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.

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.

Fibre2Fashion News Desk (DS)

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