Euro zone private sector growth slowed sharply in March as the Middle East war drove input costs to their highest in more than three years and triggered the worst supply chain disruptions since mid-2022, a survey showed on Tuesday.
The S&P Global flash euro zone Composite Purchasing Managers’ Index fell to 50.5 in March from 51.9 in February, marking a 10-month low and missing expectations in a Reuters poll for a more modest dip to 51.0.
It has stayed above the 50.0 mark separating growth from contraction for 15 straight months.
Growth stalled as new orders – a key gauge for demand – fell for the first time in eight months, driven by weakness in the services sector. Manufacturing orders continued to expand, although the output reading in the sector dipped to 51.7 from 51.9 the previous month.
“The flash euro zone PMI is ringing stagflation alarm bells as the war in the Middle East drives prices sharply higher while stifling growth,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Overall input costs jumped at the fastest pace since February 2023, with both manufacturing and services facing steeper inflation. The acceleration was more pronounced in manufacturing as energy prices surged and supply chains became choked due to the conflict.
Manufacturing suppliers’ delivery times lengthened substantially, the most since August 2022, largely due to shipping disruptions linked to the war.
Output continued to rise in Germany, helped by the fastest expansion in manufacturing production in more than four years, but fell again in France. The rest of the euro zone posted only a slight increase in activity, the weakest in 27 months.
Employment fell for a third consecutive month, with job cuts centred on manufacturing where staffing levels have declined every month since June 2023. Services employment rose marginally but at the smallest extent since September.
Business confidence plunged to its lowest in almost a year, with the monthly drop the largest since Russia’s invasion of Ukraine in early 2022. Firms remained optimistic about output over the coming year but sentiment was below the series average.
“Output growth has meanwhile slowed to near-stagnation thanks to a slump in business confidence and deterioration of new orders,” Williamson added.
The survey data pointed to euro zone gross domestic product growth slowing to a quarterly rate of just below 0.1% in March, with forward-looking indicators suggesting a heightened risk of a downturn in coming months.
Source: Reuters
