The growth rate in the eurozone's private sector slowed sharply in March due to soaring costs and disrupted supply chains linked to the war in the Middle East. The Purchasing Managers' Index from S&P Global fell to 50.7 in March, the lowest level in nine months, and total demand in the eurozone's private sector fell for the first time in eight months. Cost inflation for companies in the eurozone reached the highest level in over three years in March, with annual inflation expected to land at 2.5% in March, a clear increase from 1.9% in February. A clear price increase in energy is the main explanation for the rise in inflation in March.
Global energy markets have been plunged into deep uncertainty by the war in Iran and the effective closure of the Strait of Hormuz, disrupting critical oil and gas flows, according to research from two sources. This disruption has contributed to soaring energy costs in Europe that strain households and industry, heighten inflationary pressures, and force policymakers to trade off short-term relief with long-term transition goals, research indicates. Southeast Asia faces fuel shortages and rationing that threaten industrial activity, according to research from two sources.
Regional impacts extend beyond Europe, with China managing domestic stockpiles while balancing exports to key trading partners, exposing vulnerabilities across its supply chains, research shows. Africa grapples with higher fuel and fertilizer prices that exacerbate food insecurity, according to research from two sources. The S&P Global euro zone Composite Purchasing Managers' Index fell to 50.7 in March from 51.9 in February, but was slightly higher than a preliminary estimate of 50.5, research indicates. New business declined in March after improving steadily since July, dragged down by weaker demand for services, and overall export orders fell again, with international services demand recording its steepest drop in six months, according to research from two sources. Services activity barely rose, with the business activity index sliding to 50.2 from 51.9 in February - its weakest reading in 10 months, research shows.
National variations within the eurozone were stark, with Spain leading the growth among the major economies, while France and Italy contracted, according to research from two sources. Germany's expansion slowed to its weakest pace so far this year, with business activity growth in its service sector abruptly losing momentum in March as demand weakened amid fallout from the war in the Middle East, research indicates. The PMI for Germany fell to 50.9 in March from 53.5 in February, marking its lowest reading since September and slightly below a preliminary reading of 51.2, according to research from two sources. Employment declined while business confidence dropped, raising concerns about future hiring and investment, research shows. The survey's signal for first-quarter gross domestic product growth was 0.2%, with a risk of contraction this quarter unless the Middle East conflict is resolved swiftly, according to research from two sources.
Input cost inflation surged to its highest in slightly more than three years, with manufacturing seeing a record one-month jump, research indicates. Firms raised prices charged to customers at the fastest pace since February 2024, though the increase was more modest than the spike in their own costs, according to research from two sources. Headline inflation in the bloc jumped above the European Central Bank’s 2% target last month, hitting 2.5% from 1.9% as soaring oil and gas prices intensified the dilemma between safeguarding growth and curbing inflation, research shows. The crisis is creating new opportunities for energy producers across the United States, Canada, Brazil, and Guyana to expand production and attract investment as demand for secure, diversified supply intensifies, according to research from two sources.
Energy price volatility has been a key driver, with energy prices rising by 4.9% in March, compared to a decline of 3.1% the previous month, according to major media reports. European policymakers are confronting a trade-off between providing short-term energy relief to households and industry and maintaining long-term transition goals. Southeast Asia's industrial threats and China's supply chain vulnerabilities highlight broader global implications. The risk of eurozone contraction this quarter depends on factors like the duration of the Middle East conflict and energy market stability. Opportunities for energy producers in the Americas could reshape global supply dynamics.