Euro zone business activity close to stabilising in March, PMI survey shows By Reuters

Euro zone business activity close to stabilising in March, PMI survey shows By Reuters

© Reuters. FILE PHOTO: An aerial view shows the Seine River and the skyline of La Defense financial and business district near Paris, France, June 19, 2023. REUTERS/Stephanie Lecocq/File Photo

By Jonathan Cable

LONDON (Reuters) -Euro zone business activity was within a whisker of returning to growth in March, outperforming expectations, according to a survey which showed inflationary pressures bucked a recent trend and eased this month.

However, the recovery was uneven with a strong rebound in services activity offsetting a more severe downturn in manufacturing. There was a similar divide between the bloc’s two biggest economies, Germany and France.

HCOB’s preliminary composite Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 49.9 this month from February’s 49.2, ahead of expectations in a Reuters poll for 49.7 but marking its tenth month below the 50 level separating growth from contraction.

“Muddling through remains the name of the game for the euro zone economy in Q1, but green shoots are emerging,” said Bert Colijn at ING.

Germany’s economic downturn eased slightly in March as business activity in the service sector of Europe’s largest economy came close to stabilising, earlier data showed.

However, in France the downturn deepened as demand for French goods and services deteriorated and employment fell.

Meanwhile in Britain, outside the European Union, businesses kept up their recovery from recession but stubborn price pressures could bolster the Bank of England’s wait-and-see approach to interest rates.

Indexes covering the overall cost of operating and prices charged in the euro zone eased this month but remained elevated, with the latter falling to a four-month low.

That will likely be welcomed by policymakers at the European Central Bank who kept borrowing costs at record highs earlier this month while cautiously laying the ground to lower them later this year. They will start cutting in June, a Reuters poll found.

“The fact that price pressures remain high all but confirms that a rate cut before June is off the table. And though a cut in June remains the most likely outcome in our view, a later start to easing remains a distinct possibility,” said Franziska Palmas at Capital Economics.

Earlier on Thursday, the Swiss National Bank cut its main interest rate by 25 basis points to 1.50%, a surprise move which made it the first major central bank to dial back tighter monetary policy.

A PMI covering the bloc’s dominant services industry soared to a nine-month high of 51.1 from February’s 50.2, well ahead of the Reuters poll estimate for 50.5.

Demand for services increased for the first time since June.

But the manufacturing PMI fell to a three-month low of 45.7 from 46.5, far below all expectations in the Reuters poll which had predicted an increase to 47.0.

“If you were hoping for a recovery in the manufacturing sector in the first quarter, it’s time to throw in the towel,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

An index monitoring output nudged up to 46.8 from 46.6.

Suggesting factory managers don’t expect an imminent improvement, headcount was reduced at the sharpest rate since November, the survey showed.

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