Eurozone economic growth slows to a nine-month low, with surging cost pressures

Investing.com - Based on the latest PMI survey data released by S&P Global on Tuesday, the euro zone’s private-sector economy recorded its weakest expansion in nine months in March, as new orders fell and input costs jumped to the highest level in more than three years.

S&P Global’s euro zone composite PMI output index fell from 51.9 in February to 50.7 in March, marking the slowest growth rate since June 2025. The reading remains above the 50 threshold that distinguishes expansion from contraction, but is far below the historical average of 52.4.

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The slowdown was driven by the services sector, with the business activity index falling from 51.9 in February to 50.2, the lowest reading in 10 months. Manufacturing output growth stayed robust.

Spain was the fastest-growing country in March, with its growth rate accelerating; this was followed by Ireland, even though its pace of expansion slowed to a six-month low. Germany continued to post growth in activity, but the rate was the weakest since the start of the year. France and Italy, meanwhile, saw contractions.

In March, total new business in the euro zone fell for the first time since July 2025, mainly driven by fewer orders received by services-sector companies. New export orders (including intra-euro zone trade) also deteriorated, although the pace of decline remained moderate.

Private-sector employment fell slightly in March, marking the steepest pace of layoffs in 13 months, mainly due to a significant drop in factory employment.

Input-cost inflation accelerated sharply, reaching the highest level in more than three years. The manufacturing input prices index recorded the biggest month-on-month increase on record, rising by nearly 11 points since February. Services-sector spending also rose substantially.

Prices charged by businesses increased at the strongest pace since February 2024, although the magnitude of the inflation rise was more limited than the jump in input costs.

Business optimism fell for the first time since December 2025, with confidence dropping to the lowest level in nearly a year.

S&P Global Market Intelligence chief business economist Chris Williamson said that the March PMI showed that the euro zone economy has been severely hit by the war in the Middle East. “The encouraging growth signs seen earlier this year have been erased by soaring energy prices, disrupted supply chains, volatility in financial markets, and demand falling again,” Williamson said.

According to Williamson, the PMI data indicates GDP growth of 0.2% in the first quarter; unless the conflict is resolved quickly, the risk that the economy contracts in the second quarter is clear.

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