Euro zone manufacturing growth slowed sharply last month as Russia’s invasion of Ukraine tightened supply chain bottlenecks, dampened demand and whacked confidence, a survey showed as soaring energy costs drove a broader surge in prices.
Uncertainty caused by the invasion combined with an intensifying cost-of-living crisis suggests the bloc’s manufacturing industry could slide into a recession this quarter.
S&P Global’s final manufacturing Purchasing Managers’ Index (PMI) fell to a 14-month low of 56.5 in March from February’s 58.2, below an initial “flash” estimate of 57.0 but still well above the 50 mark that separates growth from contraction.
An index measuring output, which feeds into a composite PMI due next week and is seen as a good barometer of economic health, sank to 53.1 from 55.5, its lowest since June 2020, when the bloc was enduring the first wave of the coronavirus pandemic.
“Just as the fading of the latest pandemic wave was creating a tailwind for the euro zone manufacturing recovery, with economies reopening and supply chain bottlenecks easing, the war in Ukraine has created an ominous new headwind,” said Chris Williamson, chief business economist at S&P Global.
“Rates of growth have cooled markedly amid sanctions, soaring energy costs and new supply constraints linked to the war.”
Overall demand growth weakened as factories, facing soaring input costs, increased prices at the fastest rate since S&P Global began collecting the data in 2002. Export orders, which includes trade between member countries, declined for the first time since June 2020.
Inflation in the bloc probably jumped to 6.6% last month, data is expected to show later on Friday according to a Reuters poll, likely adding pressure on European Central Bank policymakers to raise interest rates.
Confidence indicators in the region have plummeted and the future output PMI plunged to 54.4 from 68.5, its lowest reading since May 2020.
“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.
