Euro zone manufacturing posted its strongest growth in nearly four years in March, driven in part by disruptions to supply chains that lifted headline measures, a survey showed. The S&P Global euro zone Manufacturing Purchasing Managers' Index climbed to 51.6 in March from 50.8 in February, beating a preliminary estimate of 51.4. A PMI reading above 50 signals expansion.
Survey respondents attributed a portion of the uptick to logistics strains stemming from the conflict in the Middle East. Those disruptions have caused delivery delays that, while boosting some headline activity metrics, have also coincided with a sharp rise in input costs. The survey noted that input-price inflation reached the highest level since October 2022.
"The war in the Middle East has already left its mark on euro area manufacturing," said Joe Hayes, principal economist at S&P Global Market Intelligence. "Suppliers' delivery times have risen sharply as logistics markets re-adjust to maritime disruption, while surging oil and energy prices have pushed factory input cost inflation up to its highest level since late-2022."
On demand, the new orders sub-index matched February's reading, which had been a 46-month high, but the report emphasised that growth remained modest overall. Production expanded for a third month in a row, with the output sub-index nudging up to 52.0 from 51.9 in February, marking a seven-month high.
Export orders provided a degree of relief to manufacturers by stabilising after eight successive months of contraction. Backlogs of work rose for the first time since mid-2022, indicating some build-up of capacity pressure. Despite this, firms reduced payrolls at an accelerated pace in March.
Cost pressures intensified sharply. Input cost inflation surged to a 41-month high, a move the survey linked primarily to higher oil and energy prices. In response, manufacturers increased their selling prices at the fastest rate in just over three years.
"We saw some of the war-driven inflation impulse being passed straight through to final prices in March, reducing the euro zone's competitiveness," Hayes added.
Business sentiment cooled, slipping to a five-month low and remaining under its long-term average as the geopolitical situation weighed on confidence. Country-level readings showed a mixed pattern:
- Germany and Italy recorded their strongest readings in 46 and 37 months respectively.
- Spain was the only reporting country in contraction territory.
- Greece posted the highest national PMI, followed by Ireland.
- France's manufacturing sector showed stagnation in the month.
The survey paints a picture of a sector balancing modest output gains against rising cost and logistical headwinds, with some relief from stabilising exports but persistent weakness in underlying demand.