Euro zone manufacturing growth slows sharply in March

Euro zone manufacturing growth slows sharply in March

A steel-worker is pictured at a furnace at the plant of the German steel company Salzgitter AG in Salzgitter, Lower Saxony.

A survey showed that as Russia tightened supply chain bottlenecks and dampened demand, soaring energy costs led to a broader surge in prices, Euro zone manufacturing growth slowed sharply last month.

The uncertainty caused by the invasion and the increased cost-of-living crisis suggest that the bloc's manufacturing industry could slide into a recession this quarter.

S&P Global's final manufacturing Purchasing Managers' Index PMI fell to a 14 month low of 56.5 in March from February's 58.2, below an initial flash estimate of 57.0, but still well above the 50 mark that separates growth from contraction.

An index that feeds into a composite PMI next week and is seen as a good indicator of economic health, fell to 53.1 from 55.5, its lowest since June 2020, when the bloc was enduring the first wave of the coronaviruses epidemic.

Chris Williamson, chief business economist at S&P Global, said that just as the fading of the latest epidemic wave was creating a tailwind for the euro zone manufacturing recovery, with economies reopening and supply chain bottlenecks easing.

The growth rate has cooled significantly due to sanctions, soaring energy costs and new supply constraints linked to the war. As factories faced soaring input costs, demand growth weakened as prices increased at the fastest rate since S&P Global began collecting data in 2002. Export orders, which include trade between member countries, declined for the first time since June 2020.

Inflation in the bloc went up to 6.6% last month, data is expected to show later on Friday by the European Central Bank policymakers, according to a poll by Reuters.

The future output PMI fell to 54.4 from 68.5, its lowest reading since May 2020, and the confidence indicators in the region have plummeted, and the future output PMI has dropped to 54.4 from 68.5.

Williamson said that business optimism in the goods-producing sector had collapsed to a level indicative of the decline in manufacturing output in the second quarter, adding to the risk that the manufacturing sector could fall into a new recession.