Eurozone business activity returned to growth in March, according to preliminary data released on Wednesday, but any further improvement was likely to be held back by the recent tightening of Covid-19 restrictions in several countries.
The IHS Markit composite purchasing managers’ index – which measures activity in the manufacturing and services sectors – rose to 52.5 from 48.8 in February, hitting an eight-month high and coming in above the 50.0 mark that separates contraction from expansion. This marked the first increase in business activity since last September.
Analysts had been expecting a reading of 49.1.
The flash manufacturing PMI came in at 62.4 in March compared to 57.9 in February, while the PMI for the services sector edged up to 48.8 from 45.7.
The manufacturing output index reached a record high of 63.0 in March, up from 57.6 a month earlier.
Chris Williamson, chief business economist at IHS Markit, said: “The eurozone economy beat expectations in March, showing a much better than anticipated expansion thanks mainly to a record surge in manufacturing output.
“The service sector remains the economy’s weak spot, but even here the rate of decline moderated in March as companies benefited from the manufacturing sector’s upturn, customers adapted to life during a pandemic and prospects remained relatively upbeat.”
However, Williamson said the outlook has deteriorated amid rising Covid-19 infection rates and new lockdown measures.
“This two-speed nature of the economy will therefore likely persist for some time to come, as manufacturers benefit from a recovery in global demand but consumer-facing service companies remain constrained by social distancing restrictions.”
ING economist Bert Colijn said that while Wednesday’s PMIs have surprised, they still confirm his expectations of another contraction in GDP in in the first quarter.
“But with many large economies extending and even tightening restrictive measures, the rebound in eurozone economic output will be delayed further,” he said. “We still target 2Q as the start of the recovery but expect the pace of the GDP rebound to really pick up in the second half of the year.”
Jessica Hinds, Europe economist at Capital Economics, pointed out that most of the survey responses will have come before the latest lockdown announcements, suggesting that April’s outturns will be weaker and reinforcing the view that Q2 will be poor.
“Today’s data doesn’t change our view that the second quarter is going to be very poor for the euro-zone as virus-related restrictions are extended and tightened and the vaccine rollout remains disappointingly sluggish,” she said.
