Agência para o Investimento e Comércio Externo de Portugal


Euro Area: Business activity expands in March, beating market expectations.

The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, rose to 52.5 in March from 48.8 in February. The print surprised markets on the upside and the index moved above the 50-threshold—for the first time in four months—that distinguishes expanding from contracting activity in the private sector.

In March, the manufacturing sector moved further into expansionary territory, logging the best result in the survey’s history, supported by soaring new orders—especially from abroad—and a record high increase in output. Meanwhile, the services sector continued to contract but at the softest pace since July 2020, as both new orders and production dropped at milder pace, despite social distancing restrictions and thanks to spill-over benefits from a strong manufacturing performance.

Meanwhile, firms added jobs as they expanded capacity with an eye to the recovery. On the price front, input cost inflation intensified further, especially in the manufacturing sector, where input prices jumped at the fastest pace in a decade amid serious supply shortages and sustained demand. In turn, output prices rose at the fastest pace since January 2019. Lastly, business optimism waned somewhat due to concerns over a third wave of infections although it remained elevated nonetheless.

Assessing the Eurozone’s two largest economies, business activity grew at the strongest pace in over three years in Germany, while the pace of contraction in business activity in France moderated considerably.

Commenting on the release, Chris Williamson, chief business economist at IHS Markit, said:

“The outlook has deteriorated, however, 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.”

Meanwhile, Bert Colijn, Eurozone senior economist at ING, stated:

“Today’s PMI surprised but still confirms our expectations of another contraction in GDP in 1Q. But with many large economies extending and even tightening restrictive measures, the rebound in eurozone economic output will be delayed further. 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.”

FocusEconomics Consensus Forecast panelists expect fixed investment to grow 5.2% in 2021, which is unchanged from last month’s forecast. For 2022, panelists see fixed investment increasing 3.8%.