Rising exports drive surge in eurozone factory orders

Rising exports helped drive a surge in eurozone manufacturing this month, according to a widely-watched business survey, in the latest evidence that the bloc’s economy is proving resilient despite the rapid rise in new coronavirus cases and slow vaccination progress.

The IHS Markit eurozone flash purchasing managers’ index for manufacturing rose to 62.4 in March, its highest level since records began in 1997 and up from 57.9 in the previous month, as factories scrambled to keep up with rising orders.

The reading, based on data collected between March 12 and 23, was well above the 57.7 forecast by economists polled by Reuters and much higher than the 50 mark that indicates a majority of businesses reported improving conditions compared with the previous month.

Although the single currency bloc’s services sector remains in contraction territory, its businesses reported a smaller-than-expected fall in activity. The corresponding index rose to 48.8 in March, from 45.7 in February, thanks to a stabilisation in both Germany and France.

“The eurozone economy beat expectations in March, showing a much better than anticipated expansion thanks mainly to a record surge in manufacturing output,” said Chris Williamson, chief business economist at IHS Markit. 

The composite PMI, an average of the two sectors, rose to 52.5 in March from 48.8, the first reading above the 50 mark in six months. The composite PMI for Germany hit a three-year high of 56.8, while in France the composite PMI rose to 49.5.

The sharp rise in export orders caused backlogs of work at eurozone businesses to increase for the first time in more than two years, with particularly fast growth in Germany, according to IHS Markit. Companies increased employment at the steepest pace in 18 months.

There are signs of growing inflationary pressures as factory input cost prices rose at the highest rate for a decade, while supplier delivery times lengthened the most in the survey’s 23-year history. Service sector input costs grew at their fastest pace for more than a year.

However the improving situation is likely to face fresh headwinds in the coming weeks because of new lockdowns imposed in recent days by Germany, France and Italy.

IHS Markit said that the eurozone’s dominant services sector continues to be held back by virus-related restrictions, adding: “[Business] sentiment was tarnished . . . by concerns over rising virus infection rates.”

Economists said they still expect the eurozone to suffer its second consecutive quarter of falling output in the first three months of this year; that would constitute a technical recession.

Carsten Brzeski, head of macro research at ING, said: “I don’t think that [the improving PMIs] will prevent us from a [first-quarter] contraction but the drop could be less severe than some thought.”

As a result of the new lockdowns and the slow pace of vaccines rollout the services sector could endure another contraction in the second quarter, according to some analysts.

“Today’s data don’t change our view that the second quarter is going to be very poor for the eurozone as restrictions are extended and tightened and the vaccine rollout remains sluggish,” said Jessica Hinds, Europe economist at Capital Economics.

The flash PMIs are published about 10 days before the final ones and are based on about 80 per cent of responses.