Eurozone Business Growth Picks Up Slightly in March, Led by Manufacturing

Eurozone business activity showed signs of modest recovery in March, expanding at its fastest pace in seven months, according to the latest HCOB Composite PMI data.

The gradual improvement was driven by an easing in the long-running manufacturing downturn, though slower growth in the services sector acted as a drag on overall expansion.

Key Highlights:

• HCOB Eurozone Composite PMI: 50.4 in March, up from 50.2 in February (highest since August).
• The index remains above the 50.0 threshold, indicating modest growth, but fell short of Reuters poll expectations of 50.8.
• Manufacturing output rebounded amid anticipation of a potential escalation in trade tensions.
• Services sector growth slowed, dampening overall economic momentum.

Optimism Grows for a Broader Recovery

• The outlook for the eurozone economy appears more positive, with expectations of increased infrastructure and defense spending, particularly in Germany.
• Bert Colijn, ING’s Chief Economist, noted that the first-quarter PMI data suggests positive GDP growth, following economic stagnation at the end of last year.
• Challenges remain, as export orders could remain weak due to ongoing trade tensions and sluggish global demand.

Germany Leads Growth, But Services Lose Momentum

• Germany’s business activity expanded at its sharpest pace in 10 months, supported by the first rise in manufacturing output in nearly two years.
• However, Germany’s services sector growth slowed, reflecting ongoing weakness in domestic demand.

Market Implications

• The euro (EUR/USD) could gain support if economic recovery expectations strengthen, especially with Germany’s fiscal stimulus measures.
• However, global trade tensions and weaker external demand remain key risks to sustained eurozone growth.

Investors will be watching upcoming inflation data, ECB policy signals, and trade developments to gauge the pace of recovery in the eurozone economy.