Euro zone business growth worse than expected in March

Disappointing German manufacturing data sends stocks lower

The German share index was among those that slipped on Friday after disappointing economic data. Photograph: Daniel Roland / AFP.

The German share index was among those that slipped on Friday after disappointing economic data. Photograph: Daniel Roland / AFP.

 

Businesses across the euro zone performed much worse than expected in March as factory activity contracted at the fastest pace in nearly six years, hurt by a big drop in demand, a survey showed on Friday.

While a downturn in manufacturing was partly offset by stable - yet relatively weak - growth in the euro zone’s dominant services industry, the surveys suggested the bloc’s economy had a poor first quarter.

That supports the European Central Bank’s change of tack earlier this month. It pushed out the timing of its next post-rate increase until 2020 at the earliest and said it would offer banks a new round of cheap loans to help revive the economy.

IHS Markit’s Flash Composite Purchasing Managers’ Index (PMI), which is considered a barometer to economic health, dropped to 51.3 this month from a final February reading of 51.9, missing a Reuters poll median expectation for 52.0.

“The March decline in the euro zone’s PMI indicates the bloc’s economic problems are far from over,” said Bert Colijn at ING.

IHS Markit said the PMIs pointed to first-quarter GDP growth of 0.2 per cent, below the 0.3 per cent predicted in a Reuters poll last week. The economy expanded 0.2 per cent in the final three months of 2018, its slowest pace in four years.

The flash manufacturing PMI sank to 47.6 from February’s 49.3, its lowest reading since April 2013 and well below the 50 mark that separates growth from contraction.

A Reuters poll had predicted a modest rise to 49.5 and even the most pessimistic economist surveyed had predicted a reading of 48.4.

An index measuring output, which feeds into the composite PMI, plummeted to a near six-year low of 47.7 from 49.4.

Downbeat German data

German manufacturing contracted further this month, a sister survey showed, compounding fears that unresolved trade disputes are exacerbating a slowdown in Europe’s biggest economy.

“Far from easing, as many had anticipated, the German manufacturing recession is getting worse,” said Andrew Kenningham at Capital Economics.

The downbeat German manufacturing data triggered a fall in European stock markets as fears were reignited of a recession in the region’s biggest economy. The decline in sentiment erased early gains on relief at the extension of Britain’s Brexit deadline.

The pan-European Stoxx 600 index slipped for a third day, down 0.6 per cent led by losses of almost 1 per cent in Milan and Paris while Frankfurt and London indexes lost just over 0.5 per cent.

Meanwhile, French business activity slowed unexpectedly as a recent rebound ran out of steam in the face of deteriorating demand.

Highlighting the struggles faced by factories in the region, the new orders index dropped to 44.5 from 46.3, a level not seen since the end of 2012. Casting more shadows on the outlook, companies ran down old orders and raw materials and built up stocks of completed goods.

Growth in the services industry slowed in line with a Reuters poll. Its PMI dipped to 52.7 from 52.8.

And some of that activity came from completing old work. The backlogs of work index fell to 49.0 from 51.0, only the second time it has been sub-50 in almost three years.

Adding to the melancholy picture, services slowed their hiring. – Reuters.