Eurozone Composite PMI Rises to 10-Month High, But Falls Short of Expectations

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The Eurozone's economy was less dynamic in March than previously anticipated, though it still appears to have grown at its fastest pace in 10 months, according to a recent survey released by S&P Global. The Eurozone composite purchasing managers index (PMI) rose to 53.7, up from 52.0 in February. While this is its highest level since May of last year, it is slightly below the preliminary estimate of 54.1 that was released last week. S&P Global attributes the accelerated upturn to the service sector, while noting that manufacturing production picked up slightly. However, Germany and France's composite PMIs of 52.6 and 52.7, respectively, were lower than Italy's 55.2 and Spain's 59.4 readings.

S&P's survey reveals a mix of news for the European Central Bank, which is still grappling with stubbornly high inflation. While the factory gate price eased due to a moderation in energy prices, service sector inflation remained strong. Respondents to S&P's survey reported a sharp rise in operating costs due to higher wage demands.

Earlier on Wednesday, Germany announced that manufacturing orders in February had increased by 4.8%, the largest monthly rise in a year and a half. France's industrial production for February also came in ahead of expectations, up 1.2% on the month. However, Germany and France were lagging behind the rest of the region, with both countries affected by widespread strike action during the month.

Pantheon Macroeconomics' Claus Vistesen noted that the PMIs are telling a story of an economy with a domestic services sector that is now stretching its legs after having been held back by an inflation shock. He believes that this is unlikely to continue, though, as he expects a tightening of credit standards in response to last month's bank collapses to take an increasing toll on the economy over the next two quarters.

In response to the survey, the euro edged down 0.1% to $1.0944, having hit a two-month high on Tuesday after weak U.S. labor market data. The survey's results suggest that the Eurozone's economy still has some way to go before it can be considered back to full strength, and it remains to be seen how long the region's domestic services sector can continue to grow.

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