Brussels: Economic growth in the Eurozone has slowed sharply, with rising fuel prices and supply chain disruptions linked to the Middle East conflict pushing the region toward stagnation, according to the latest Purchasing Managers’ Index (PMI) data.
The S&P Global Flash Eurozone Composite PMI fell to 50.5 in March, down from 51.9 in February—a 10-month low and below market expectations of 51 in a Reuters poll. While the index has remained above the 50 threshold that separates growth from contraction for 15 consecutive months, the latest reading signals that expansion is now barely sustained.
The survey highlights mounting pressure across both manufacturing and services, as input costs surge to their highest level in three years. Energy prices have risen sharply, while supply chain disruptions—particularly in shipping—have intensified due to the ongoing conflict, significantly impacting production and business activity.
Services Sector Weakens, Demand Slows
The services sector, a key driver of the eurozone economy, is showing signs of stagnation. New orders declined for the first time in eight months, indicating weakening demand. Output growth in the sector edged down slightly to 51.7 from 51.9, reflecting a near standstill in activity.
At the same time, manufacturing continues to expand modestly, though it faces increasing challenges. Delivery times for inputs have lengthened significantly, marking the most severe delays since August 2022.
Economic performance varies across the region. Output increased in Germany, while France experienced another decline. Other eurozone economies recorded only marginal growth, contributing to what the PMI describes as the weakest overall performance in 27 months.
Rising Costs and Falling Confidence
Both manufacturing and services sectors are experiencing steep inflationary pressures, driven largely by rising energy costs. Employment has also declined for the third consecutive month, with workforce reductions occurring consistently since mid-2023.
Business confidence has fallen to its lowest level in a year, marking the sharpest drop since the onset of the Russian invasion of Ukraine. Although firms remain cautiously optimistic about future output, overall sentiment remains below historical averages.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, warned that the data points to a growing risk of stagflation—where high inflation coincides with weak economic growth. He noted that declining new orders and reduced business confidence are key factors behind the near halt in output growth.
Survey data suggests that eurozone GDP growth may have slowed to below 0.1% on a quarterly basis in March, raising the likelihood of a potential recession in the months ahead.
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