Eurozone business activity posts modest growth in March

The HCOB Eurozone Composite PMI edged up to 50.4 in March from 50.2 in February, falling short of market expectations of 50.8, according to a preliminary estimate.

Eurozone business activity posts modest growth in March

Despite the slight miss, the data marked the third consecutive month of modest expansion in business activity across the bloc, with growth reaching its fastest pace since last August. The key driver behind the improvement was the manufacturing sector, which returned to expansion for the first time in two years, recording its strongest increase in output since May 2022. However, this was tempered by a slowdown in the services sector, where growth eased to a four-month low. While manufacturers saw a turnaround in production, demand conditions remained weak, as new orders continued to decline, suggesting that the recovery in the industrial sector remains fragile.

Employment levels largely stabilized

Employment levels largely stabilized after seven months of continuous decline, indicating that businesses are becoming more cautious but are not yet resuming hiring on a broad scale. Meanwhile, backlogs of work continued to shrink for the 24th straight month, highlighting persistent slack in business operations. On the inflation front, input cost pressures eased to their lowest level since November, reflecting improved supply chain conditions and reduced raw material costs. Selling price inflation also dropped to its lowest level this year, signaling that companies are finding it harder to pass costs on to consumers amid subdued demand.

Business confidence weakened again

Finally, business confidence weakened for the second consecutive month, reaching its lowest level since November, as concerns over the broader economic outlook, geopolitical risks, and potential disruptions from US trade policies weighed on sentiment. Investors will now turn their attention to upcoming inflation and wage data, which could provide further clues on the European Central Bank’s policy path in the coming months.