• Prior 50.2
  • Manufacturing PMI 45.7 vs 47.0 expected
  • Prior 46.5
  • Composite PMI 49.9 vs 49.7 expected
  • Prior 49.2

Once again, the divergence in euro area economic performance is rather clear to see. While services activity is picking up and improving, the manufacturing sector is left behind and still stuck in a recession. But at the balance, it at least helps to see the overall economy move closer to stabilising at the end of Q1. HCOB notes that:

“If you were hoping for a recovery in the manufacturing sector in the first quarter, it's time to throw in the towel. The March PMI confirmed the clear weakness of this sector, which seems to be dominated by the heavyweight Germany. Output fell at more or less the same pace as in the first two months of the year, and new orders continued their downward trend unabated. However, there is a glimmer of hope. Companies remain optimistic about future production. Moreover, the index of stocks of finished products has risen for the second month in a row and is approaching the point of no change. Reaching this point would mean that destocking would no longer be a drag on production.

“These are the times that make you humble and where a modest monthly expansion is already good news. In this sense, the fact that the services PMI moved further into expansionary territory at 51.1 should be seen as a positive development, especially as it marks the second consecutive month of growth. Similarly, the fact that new business rose for the first time in nine months is notable and fits with the further improvement in business expectations.

“The European Central Bank can take some comfort from the fact that price pressures in the wage-sensitive services sector have not increased further. Instead, the rise in input costs has softened somewhat, and the same is true of selling prices. However, price pressures remain elevated. Therefore, the PMI price news is not enough to change the ECB's apparent plan to cut rates in June rather than April.

“Comparing France and Germany, the composite PMI data shows almost the same degree of weakness. However, there are two important differences. First, in Germany the output index improved in March, while in France it deteriorated. And second, the downturn in France is more widespread than in Germany, with both the manufacturing and services sectors contracting. In Germany, on the other hand, it's only the manufacturing sector that is showing negative growth, while the services sector is broadly stagnating. None of this is encouraging, and compared to the eurozone economy as a whole, both economies are laggards.”