Eurozone economic outlook darkens 'significantly' - survey

Eurozone growth slowed in March, a closely-watched survey showed on Thursday, as the war in Ukraine weighed heavily.

The S&P Global Eurozone PMI Composite Output Index for March was 54.5, a two-month low and down on February’s 55.5, although it remains the second-strongest expansion since November. It was also above consensus expectations of around 53.9.

Service sector companies benefited from resurgent demand following the easing of Covid-19 restrictions across the bloc. But respondents from both the service and manufacturing sectors reported weakening demand, rising uncertainty, higher costs and renewed supply chain issues since Russia’s invasion of Ukraine at the end of February.

Costs and average prices charged for goods and services also rose at an "unprecedented rate", the survey found, as commodity prices rocketed and supply chain delays ramped up again.

The Services PMI Activity Index eased to 54.8 from 55.5, while manufacturing output fell to a five-month low of 53.6 compared to 55.5 a month earlier. The manufacturing PMI was 57.0, a 14-month low, down from 58.2 in February.

Chris Williamson, chief business economist at S&P Global, said: "The survey data underscore how the Russia-Ukraine war is having an immediate and material impact on the Eurozone economy, and highlights the risk of the Eurozone falling into decline into the second quarter.

"Had it not been for the easing of Covid-19 containment measures, to the lowest since the start of the pandemic, business activity would have weakened far more sharply in March.

"While the headline indicators on current output from the PMI survey may have beaten expectations, the detail reveals a significantly darker economic outlook compared to February, signally slower growth and higher inflation in the months ahead."

Bert Colijn, senior eurozone economist at ING, said: "Businesses have clearly been impacted by the surge in energy prices seen since the war started. Both input and output prices surged at a record pace in March. This suggests a broadening of inflation, as even higher energy prices are causing passthrough effects to happen more quickly than expected.

"We already expect inflation to soar above 7% in March, and think that prices are set to increase further in April.

"Also important is that backlogs of work have been decreasing. Together with dropping business sentiment and weakening real wage growth, this results in a much weaker economic outlook for the months ahead."

The survey data was collected between 11 and 22 March from a representative panel of around 5,000 companies based across the Eurozone. The March readings are flash estimates.