Business activity in the euro zone stabilized in March, thanks largely to a “moderate recovery” in the services sector, a high-profile survey showed on Thursday.
S&P Global's HCOB Flash Eurozone Purchasing Managers' Index (PMI) for March was 49.9, up from 49.2 in February.
A number below 50 indicates shrinkage. The latest measurements hit just that threshold, the highest in nine months.
“Business activity in the euro area approached stability in March,” the survey said, with “output of goods and services decreasing only slightly.”
However, it said continued declines in production in the euro zone's two largest economies, Germany and France, are hampering the index's expansion.
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Overall activity in the services sector increased for the second month in a row, marking the largest increase since June 2023.
On the other hand, although manufacturing production has declined for the 12th consecutive month, the rate of decline is slowing.
This indicator is reflected in the calculation of European Central Bank interest rates and the outlook for interest rate cuts in the European Union as inflation risks recede.
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ECB President Christine Lagarde warned on Wednesday that there was a risk of cutting interest rates “too late”, raising the possibility of a cut in June when the ECB releases its latest growth and inflation forecasts.
The ECB has kept interest rates on hold since October following an unprecedented series of rate hikes aimed at curbing red-hot inflation.
“The survey details show that employment growth and price pressures are easing,” said Clemente de Lucia, senior European economist at Deutsche Bank.
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However, he noted that the March reading was still slightly below the ECB's forecast for PMI to rise only slightly towards expansion territory.
“There are some green shoots emerging for the second half of this year, but we expect the economy to remain sluggish for some time,” said Bart Kollein, senior eurozone economist at ING Bank.
He added that easing inflationary pressures in the services sector “helps our view of the ECB's June interest rate cut.” “Consumers are gradually regaining purchasing power as real wage growth has turned positive, but much will depend on them.”
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Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, quoted in a statement on the PMI statistics, said that although German and French PMI sentiment showed similar degrees of weakness, there were differences. .
“First, Germany's production index improved in March, but it worsened in France. Second, France's economic downturn was more widespread than Germany's, with both manufacturing and services contracting,” he said. “There is,” he said.
“In Germany, on the other hand, only the manufacturing industry is showing negative growth, and the services industry is generally stagnant.”
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