Business activity in the euro area has grown in March for the first time in six months, marking the largest increase since July. However, the modest recovery could be easily derailed by the third wave of Covid-19 infections.
HS Markit’s final Composite Purchasing Managers’ Index (PMI), which is considered a good gauge of economic health and combines both manufacturing and services, climbed to 52.5 in March compared to 48.1 recorded last month. A reading above 50 separates growth from contraction.
Manufacturing has become a major driver of the latest growth, while the services sector that had experienced the hardest hit from the pandemic also saw an improvement, climbing to a seven-month high.
“The eurozone economy beat expectations in March, showing a much better than anticipated expansion thanks mainly to a record surge in manufacturing output,” Chris Williamson, chief business economist at IHS Markit, said in a statement.
According to the report, concerns about performance of the economy in the second quarter remain as social restrictions across the euro area are still in force. Earlier this week, the German authorities extended the lockdown. France introduced lockdowns in about 14 regions, including the capital city, amid rising cases, while Poland announced tougher restrictions.
“The outlook has deteriorated, however, amid rising Covid-19 infection rates and new lockdown measures,” said Williamson.
“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 service companies remain constrained by social distancing restrictions,” he added.
The manufacturing upturn was boosted by record growth in factory production in Germany along with the fastest production growth since January 2018 in both France and the region as a whole, IHS Markit reported.
German manufacturing activity grew to a record high with the services sector expanding after five successive months of contractions. In France, activity held up better than expected, with manufacturing surging ahead at its fastest pace in more than three years.
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