Euro-Area Companies Return to Growth With Price Pressures Rising

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Private-sector activity in the euro area unexpectedly grew for the first time in six months in March, fueled by a record increase in factory output that masks fresh concerns across the economy about surging infections and new lockdowns.

The upturn is also fueling price pressures in the broader economy as companies seek to pass on a spike in costs caused by shortages and shipment delays that has been hitting them all year. Input costs rose at the fastest pace in a decade and selling prices for goods and services increased the most in more than two years, according to an IHS Markit survey.

That trend “will likely feed through to higher consumer price inflation in coming months,” said Chris Williamson, an IHS Markit economist.

Euro-Area Companies Return to Growth With Price Pressures Rising

Bunds pared gains after the stronger-than-expected German and euro-area numbers. Ten-year yields fell 2 basis points to -0.36%, after sliding as much as 3 basis points earlier.

What Bloomberg Economics Says...

“The longer government restrictions remain in place to slow the spread of Covid-19, the more domestic businesses and consumers are adapting their spending habits.”

-David Powell. To read his report, click here.

Firms stepped up hiring capacity to cope with strengthening demand, the survey of purchasing mangers showed. New orders rose at the fastest pace since July, with those from outside the region growing by the most in more than three years.

MarchFebruary
Manufacturing PMI62.4 (est. 57.6)57.9
Services PMI48.8 (est. 46.0)45.7
Composite PMI52.5 (est. 49.1)48.8

Still, the immediate outlook has deteriorated after spiraling coronavirus cases raised the specter of fresh restrictions. The German government extended curbs this week through mid-April and postponed plans to reopen Europe’s largest economy. In France, several regions including Paris have been under a new lockdown since Saturday, and most of Italy has also been plunged into fresh shutdowns.

Euro-area services activity -- which particularly affected by social distancing rules and closures -- shrank for a seventh month.

“This two-speed nature of the economy will therefore likely persist for some time to come, as manufacturers benefit from a recovery in global demand but consumer-facing services companies remain constrained,” Williamson said. “The service sector remains the economy’s weak spot.”

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