March saw the biggest fall in the manufacturing Purchasing Managers’ Index (PMI) since June 2011 and the third successive slowing in the pace of expansion.
Industry should not be too worried by the fall in the PMI as some moderation in the pace of growth from the surge seen at the turn of the year was inevitable, not least because short-term capacity constraints limit the economy’s ability to grow so quickly for long periods. This has been clearly evident in the recent lengthening of supply delivery times. Some of the slowdown has also been attributable to temporary factors such as bad weather.
However, the fact that business optimism about the coming year has slipped to a 15-month low suggests there are other factors that are now hitting factory order books. Export growth has more than halved since late last year, linked in part to the appreciation of the euro, and in some cases demand is being hindered by higher prices.
The overall pace of growth nevertheless remains robust by historical standards, with decent PMI readings seen in all countries, including Greece, to
indicate a steady, broad-based expansion.
Manufacturing should therefore make another substantial contribution to GDP growth in the first quarter. Sentiment among euro area manufacturers
regarding future output softened in March to a 15-month low, but remained strongly positive overall.
Source: Markit economics, https://www.markiteconomics.com