The recovery prospects for the euro area economy continued to brighten in March. At 53.1, the final Markit Eurozone PMI® Composite Output Index signalled output growth for the ninth successive month, underpinned by improving market conditions and rising levels of new business.
Although the headline output index was lower than February’s 53.3 and the earlier flash estimate of 53.2, it remained consistent with a 0.5% increase in GDP for the first quarter as a whole, improving on the 0.3% registered in the final quarter of 2013. The currency union is currently enjoying its strongest growth spell since the first half of 2011.
Among the five countries for which both manufacturing and services data are available, the steepest increase in output was signalled by Ireland where growth surged to a seven-year record. Germany was in second position overall – despite seeing its rate of increase ease to a five-month low – edging out Spain which came a close third following a slight growth acceleration. The big mover was France, which stepped back into expansion territory following contractions in each of the past four months. Italian growth slipped to a three-month low.
The outlook for the eurozone economy remains on the upside, with new orders rising and a slight accumulation of backlogs of work during March. The upturns in business activity, new orders and outstanding business have not yet encouraged a recovery in the labour market, but signs are also improving on this front too.
Employment has held broadly steady in each of the past four months. March saw further job creation in Germany and Ireland, and a notable shift closer to stabilisation in France following a run of job losses that started in November last year. Rates of decline accelerated slightly in Spain and Italy, but remained modest compared to rates seen during much of the past two-to-three years.
Price pressures moderated, as highlighted by average output charges declining and input cost inflation easing to an eight-month low. Selling prices have now fallen throughout the past two years. Companies indicated that strong competition remained a factor affecting their pricing power during the latest survey period.
The Eurozone Services Business Activity Index posted 52.2 in March, down slightly from February’s 32-month high of 52.6. The index therefore signalled an expansion of output for the eighth successive month and one of the fastest rates of growth since the first half of 2011.
The rate of expansion in Ireland surged higher, closing in on December 2013’s near-seven year record. Although France saw only a modest increase in business activity, this was a marked improvement on the contractions registered in the prior four months. Services output growth slowed to a five-month low in Germany and ticked higher in Spain, while Italy fell back into contraction.
The latest increase in eurozone services output was underpinned by a moderate increase in new business, which rose at a similar pace to February. The outlook for the sector also brightened, as business confidence* hit a near-three year peak. Optimism was highest in Ireland (despite dipping over the month), improved in Italy and Spain, and held broadly steady in France and Germany.
Employment was broadly unchanged in March, as rising levels of business activity and new orders aided in stabilising the trend in service sector headcounts. Strong jobs growth was again signalled in Ireland, while Germany also posted a modest increase (albeit at a slower pace than in February). Although further losses were reported in France, Italy and Spain, rates of decrease slowed in France and Spain and steadied in Italy.
Strong competition remained a factor affecting eurozone service providers in March, leading to further selling price discounts. Average charges fell for the twenty-eighth month running, with only Germany reporting an increase.
The moderation in price pressures was also reflected on the cost side, with average input price inflation in the euro area service sector the weakest since June last year. Rates of increase eased in almost all of the nations covered, the exception being Italy (where the pace was broadly stable).
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