- Prior 50.6
- Manufacturing PMI 48.7 vs 48.2 expected
- Prior 47.6
- Composite PMI 50.4 vs 50.8 expected
- Prior 50.2
It’s a tale of two stories when it comes to the Eurozone business activity in March. While the manufacturing print was a 26-month high, the services print slumped to a 4-month low amid contrasting fortunes. The pace of expansion was better than in February overall but still, it’s just a marginal growth at best. New business continues to suffer as demand conditions remain soft but at least employment conditions are seen stabilising a bit as a whole. In terms of prices, there wasn’t too much change compared to the month before. HCOB notes that:
“Just in time with the beginning of spring we may see the first green shoots in manufacturing. While we should not be carried
away by a single data point, it is noteworthy that manufacturers expanded their output for the first time since March 2023. It’s
also encouraging, that the index output has risen for three months straight. This is complemented by a much softer fall in
new orders and employment. One could pour some cold water on this development arguing that it’s the temporary tariffrelated import boom from the US which has driven the improvement in manufacturing. However, given the will of Europe, to
invest heavily in defense and infrastructure – in Germany a corresponding historical fiscal package has been approved only
last week – hope for a more sustained recovery seems well founded.
“The price development in the services sector, which is very much under scrutiny of the ECB, will be well received by the
doves of the monetary authority. Both input costs and selling prices are rising at a slower pace compared to recent months.
Lower input cost inflation points to less pressure from wages which are a key ingredient of input costs in the labour intensive
services sector. Meanwhile, in manufacturing, price increases for both selling and purchasing remain moderate, helped
along by declining energy costs. However, there are still plenty of risks on the ECB’s radar, like potential retaliation tariffs
from the US, measures to curb goods coming from China, and higher food prices spurred by extreme weather. These
factors, coupled with overall uncertainty, make some ECB members hesitant to cut rates too aggressively.
“Interestingly, Germany outperformed its key European trading partner France in March in both manufacturing output and
services activity. Still, if we zoom out and look over the past two years, France’s industry has only contracted by about 1%
since early 2023, while Germany’s has dropped by roughly 8%. In this respect, Germany has a lot of catching up potential.
“Business expectations are well below average in the services sector and at average in manufacturing, which is of small
wonder given the challenges companies are faced with amid the challenges around tariffs, geopolitical tensions and
uncertainties surrounding monetary policy. There is some likelihood, that Europe seizes the opportunity and shows more
unity with respect to reforms, defense spending, and completing the capital market union, to name a few things. This could
send a clear message that Europe’s position as a key business hub is set to strengthen in the years ahead.”