Eurozone manufacturing growth slowdown continues in March

ANKARA

The euro area manufacturing sector saw a further slowdown in growth in March amid sanctions, soaring energy costs, and new supply constraints caused by Russia’s war on Ukraine.

The S&P Global Eurozone Manufacturing Purchasing Managers’ Index (PMI) slumped to a 14-month low of 56.5 in March, according to global data company IHS Markit’s latest report released on Friday.

The figure slipped from 58.2 in February and signaled the “slowest improvement in operating conditions faced by goods producers since the beginning of 2021.”

Escalating geopolitical tensions weighed on demand and smashed business confidence, which plummeted to its lowest level since May 2020.

Growing supply chain pressures due to China’s spiraling COVID-19 situation and the Ukraine war led to longer lead times, the report said.

Amid surging commodity, fuel, and energy costs, input price inflation re-accelerated in March and hit a four-month high, while European manufacturers raised charges to the largest extent ever in a bid to offset margin pressures, according to IHS Markit.

The rate of expansion slowed in all euro area countries except for Ireland and Austria.

Ireland posted the strongest improvement in manufacturing operating conditions, marginally outpacing Austria, the report added.

“Just as the fading of the latest pandemic wave was creating a tailwind for the eurozone manufacturing recovery, with economies reopening and supply chain bottlenecks easing, the war in Ukraine has created an ominous new headwind,” said Chris Williamson, a chief business economist at S&P Global.

The uncertainty caused by the Ukraine war and the worsening cost of living crisis threatens to pull growth even lower in the coming months, as reflected in the slumping of manufacturers’ growth expectations for the coming year, he added.

“Business optimism in the goods producing sector has collapsed to a level indicative of manufacturing output declining in the second quarter and adding to the risk of the manufacturing sector sliding into a new recession,” Williamson said.