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Eurozone rebounds from Covid but Ukraine war hitting exports – PMI

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Business in the eurozone showed a rebound in March from the Covid Omicron variant, but the Russia-Ukraine war is starting to hit sentiment and a recession could be possible, according to a survey published on Tuesday.
The final S&P Global composite purchasing managers’ index (PMI) fell to 54.9 in March from 55.5 in February, but was higher than a flash estimate of 54.5. In services, the PMI rose to 55.6 from 55.5, also beating the flash reading of 54.8.

However, rising prices as a result of inflationary pressures on raw materials and soaring energy costs led to a fall in exports.

“New orders also increased at a solid rate in March, although new business from export markets deteriorated as the war in Ukraine reportedly impacted cross-border trade. Business confidence meanwhile took a significant hit, slumping to a 17-month low as rising geopolitical tensions and inflation weighed on the outlook,” the survey stated.

Eurozone inflation hit a record high of 7.5% in March, official data showed last week. S&P’s composite futures output index fell to 59.1 from 68.9, its lowest level since October 2020.

“The further reopening of the eurozone economy amid the fading Omicron wave has provided a welcome tailwind to business activity in March, helping drive a further solid expansion from the slowdown seen at the start of the year,” said Chris Williamson, Chief Business Economist at S&P Global said.

“However, the resilience of the economy will be tested in the coming months by headwinds which include a further spike in energy costs and other commodity prices due to Russia’s invasion of Ukraine, as well as worsening supply chain issues arising from the war and a marked deterioration in business optimism regarding prospects for the year ahead.”

Williamson said the growth outlook had deteriorated at a time when the inflation outlook has worsened.

“A recession is by no means assured, as the extent to which the economy could suffer in the coming months will depend on the duration of the war and any changes to both fiscal and monetary policy. It certainly seems likely however that the solid expansion seen in March will prove hard to sustain and there is clearly a greater risk of the economy stalling or contracting during the second quarter,” he said.

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