Positive Signs Emerge in European 1Q Economic Growth

(Editor's Note: All data and analysis were released prior to the latest terrorist attack on European soil on March 22 in Brussels, Belgium).

Led by an upturn in services and new business growth, the eurozone economy gained some steam at the end of the first quarter.

Markit’s flash Eurozone Purchasing Managers' Index (PMI) increased to 53.7 in March from 53 in February, showing the fastest expansion rate since December. Manufacturing growth was slight, but output and new orders rebounded from 12- and 10-month lows, respectively, from February, according to Markit data. Analysts also expect the service sector to improve throughout the year.

“The eurozone saw renewed signs of life at the start of spring,” said Chris Williamson, chief economist at Markit. “The March PMI showed a welcome end to the worrying slowdown trend seen in the first two months of the year, putting the region on course for a 0.3% expansion of GDP in the first quarter. ... [still], “plenty of worrying signs persist, however, to take the shine off the rise in the headline PMI." Among those is that the miniscule uptick in new order growth suggests growth through the spring is no certainty.

Other cloudy spots included employment, which saw its smallest monthly increase since September, while work backlogs barely budged. Services employment saw the smallest growth in half a year, while the manufacturing sector hadn’t seen such tiny job gains in 16 months, the report found. Prices continued to drop across the Eurozone, including average input costs which decreased again for the third straight month and drove down average prices charged by firms for their goods and services at the second-fastest rate in over a year, Markit said.

Germany experienced the most growth by country, even though the pace of economic expansion was unchanged from February’s five-month low. New orders remained anemic in Germany and at an eight-month low; however, manufacturing output rose slightly and services expansion stayed on solid footing, analysts found.

- Nicholas Stern, NACM editorial associate

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