Service sector revival powers eurozone growth higher in March
Eurozone economic growth accelerated to a ten-month high in March according to the latest flash PMI survey data, adding to signs that the economy is reviving after falling into decline late last year.
Inflationary pressures have meanwhile continued to moderate, with input prices even falling sharply in manufacturing. Jobs growth has also accelerated and business confidence in the outlook has remained resilient despite concerns stemming from recent banking sector stress and higher borrowing costs.
However, the overall rate of growth remains modest and driven solely by the service sector, with manufacturing suffering a further loss of new orders, meaning current output is only being sustained via backlogs of previously placed orders.
Furthermore, despite easing further, overall input cost and selling price inflation rates remain elevated by historical standards. In fact, charges again rose at a pace unseen prior to the pandemic.
Therefore, Eurozone PMI Composite Output Index, based on approximately 85% of usual survey responses, rose for a fifth consecutive month in March, up from 52.0 in February to a ten-month high of 54.1.
The latest reading indicated a third successive month of growth with the rate of expansion having accelerated throughout the year to date.
Growth was again powered by the service sector, where business activity rose for a third straight month, the index up from 52.7 in February to 55.6 in March to register the strongest expansion since last May.
A key development was the further revival of growth in financial services, with a notable turnaround in real estate activity compared to late last year, despite recent concerns regarding banking sector stability and higher interest rates.
Consumer services activity also continued to revive from the downturn seen late last year, notably in respect to travel and tourism.
Growth was also recorded in industrial services, IT and healthcare. Manufacturing output, on the other hand, broadly stagnated for a second consecutive month in March, the factory output index dipping from 50.1 to 49.9.
The flat picture nevertheless represents an improvement on the solid declines seen throughout the second half of last year.
The autos sector in particular reported a stronger performance, linked in part to improved supply chains.
Within the euro area, output rose for a second straight month in both France and Germany, the former reporting the faster pace of expansion as its composite output index rose from 51.7 to 54.0, its highest since last May.
Stronger French service sector growth offset a sustained steep manufacturing decline. The composite PMI for Germany meanwhile rose from 50.7 to 52.6, likewise registering the fastest expansion since last May with solid service sector growth accompanied by a marginal increase in factory output.
However, it was the rest of the eurozone as a whole that again reported the strongest performance, the composite index up from 53.4 to an 11-month high of 55.5.
Services activity surged higher at a rate not seen since November 2021 and manufacturers reported a modest upturn in production for a second successive month.