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Eurozone growth could slow to 14-month low, PMI survey finds

By Oliver Haill

Date: Thursday 22 Mar 2018

Eurozone growth could slow to 14-month low, PMI survey finds

(ShareCast News) - Eurozone business activity in March grew at the slowest rate in 14 months, with disappointing manufacturing and services PMI surveys on Thursday.
The 'flash' estimate of the manufacturing purchasing managers' index from IHS Markit fell to an eight-month low of 56.6 in March from 58.6 the month before and below the 58.1 expected. Flash surveys are based on approximately 85% of normal replies received for the monthly PMI.

The flash services PMI dropped to a five-month low of 55.0 in March from 56.2 in February, below the consensus forecast of 56.0.

As a result the eurozone PMI composite output index plummeted to a 14-month low of 55.3 from 57.1 in February. The surveys indicate eurozone gross domestic product will rise 0.7-0.8% in the first quarter.

According to the March PMIs manufacturing and services sectors saw new order inflows cool off, with goods export orders showing the smallest rise since November 2016. New order inflows rose at the slowest rate in 14 months.

March employment growth was one of the largest monthly rises of the past 17 years but slowed slightly year-on-year to a six-month low.

Inflationary pressures continued from rising raw material prices as well as increased wages and salaries, with sharply rising input costs leading to a marked rise in average selling prices. Though rates of inflation cooled for a second month in a row, both costs and selling prices continued to rise at some of the fastest rates seen over the past seven years, Markit said.

The Markit survey, which revealed a sharp fall in the German PMI and a more modest decline in France, came on the same day as data from Germany's IFO showed business confidence in the country worsened more than expected in March, with the Institute, said the threat of protectionism is dampening the mood in the German economy.

Chris Williamson, chief business economist at IHS Markit, said the loss of momentum since the buoyant start to the year was "quite dramatic".

"At least some of the slowing may be ascribed to bad weather in some northern regions and, perhaps more importantly, 'growing pains' resulting from the strength of the recent growth spurt. Supply chain delays and raw material shortages were often reported to have stymied production in manufacturing (delays in German supply chains are currently more widespread than at any time in the survey's 22-year history), and both manufacturing and services sectors also saw activity being curtailed by growing incidences of skill shortages."



But he acknowledged that other factors were clearly at play. "The fact that export order book growth has more than halved since the end of last year suggests the stronger euro is taking an increasing toll on export performance. Survey responses also highlighted how political uncertainty also appears to have intensified, dampening demand."

Jennifer McKeown at Capital Economics said the PMI and Ifo surveys point to a softening of euro-zone growth, particularly in Germany, which supports the ECB's cautious approach to policy normalisation.

"The decline cannot be blamed entirely on the strength of the euro or concerns about protectionism - while export orders fell, total orders fell more sharply and service sector activity softened too. Note, though, that for now at least the PMI remains at a high level, consistent with quarterly GDP growth of around 0.5% at the end of Q1. And the future output component of the survey does not point to a sharp slowdown to come."

She added that the German Ifo survey suggested "the economic cycle may be turning", though she was not yet inclined to change forecasts for eurozone GDP to rise by an above-consensus 2.5% this year.

"That forecast already assumed that quarterly growth would slow from the strong pace seen last year and a modest fiscal boost should help to support the German economy. But today's surveys suggest that there are downside risks to that forecast and with the price indices softening alongside activity, the ECB will continue to tread very carefully."





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