EU Economy
Eurozone manufacturing expansion eased in March from February’s ten-and-a-half year peak
By Finfacts Team
Apr 1, 2011 - 11:20 AM

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The Flash Eurozone Composite Output Index, March 2011 Source: Markit

At 57.5 in March, the Markit Final Eurozone Manufacturing PMI was below February’s ten-and-a-half year peak of 59.0 and marginally down on the earlier flash estimate of 57.7. Nevertheless, the latest reading was still amongst the highest seen in the survey’s 14-year history.

Manufacturing output, new orders and new export orders all expanded for the twentieth consecutive month in March. Despite easing since February in all three cases, rates of expansion remained well above long-run survey averages.

The strongest PMI readings were seen in Austria, Germany and the Netherlands. However, all but one country saw a lower PMI reading compared to February. Although the Greek PMI climbed to its highest level since January 2010, it remained the only country to see an ongoing contraction of the manufacturing sector.

Production growth was strongest in the investment and intermediate goods sectors, while consumer goods remained a drag on the pace of expansion.

Jobs growth remained close to last month’s ten-and-a-half year high, led by a record increase in Germany and a further marked gain in Austria. Only Spain and Greece saw employment fall during the month, further highlighting the divergence between business conditions in the core and the periphery.

These divergences were also highlighted by data on backlogs of work. Despite higher employment, backlogs increased markedly in Germany and Austria, while modest gains were seen in France, Italy and the Netherlands. However, levels of outstanding work fell in Spain, Ireland and Greece, pointing to the existence of spare capacity.

Markit said price pressures remained elevated in March. Average input prices increased at a rate close to February’s survey record (though below that signalled by the earlier flash estimate). There were widespread reports of higher food, energy, fuel, metals, oil and other commodity prices. The steepest increases were seen in France, the Netherlands and Germany. However, only Ireland and Greece saw increased rates of inflation compared to February, the former seeing a particularly steep jump.

Part of the latest rise in input prices reflected supply-chain disruption and raw material shortages (though, so far at least, these were not directly attributed to the crisis in Japan), as highlighted by another near-record lengthening of supplier lead times.

With companies striving to pass higher costs onto customers, factory gate prices rose to the greatest extent since charges data were first collected in November 2002. Record or joint-record increases were seen in France, Spain, the Netherlands, Ireland, Austria and Germany, and also close to an all-time high in Italy. Only Greece saw a decline.

Chris Williamson, Chief Economist at Markit said: "The Eurozone’s manufacturers continued to report buoyant business conditions in March. Despite the slight easing since February, the data are consistent with industrial production growing at a quarterly rate of 2%, spearheading the region’s recovery.

"National divergences are marked, however, with surging output growth driving record job creation in Germany, while weak or falling production led to ongoing job losses in Spain and Greece.

"The record jump in average prices charged for goods will further encourage the European Central Bank to increase interest rates sooner, rather than later, which may drive further divergences among member states as higher borrowing costs hit already weak demand in the periphery."

The Eurozone Manufacturing PMI (Purchasing Managers' Index) is produced by Markit and is based on original survey data collected from a representative panel of around 3,000 manufacturing firms. National data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. These countries together account for an estimated 90% of Eurozone manufacturing activity.

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