Eurozone PMI slips to 50.5 as war lifts costs

Growth slows sharply as costs rise

Eurozone private-sector activity cooled in March as higher energy prices and supply disruptions linked to the war in the Middle East hit demand and business sentiment. S&P Global’s composite Purchasing Managers’ Index (PMI), which tracks activity across manufacturing and services, fell to a 10-month low and moved closer to the 50 mark that separates growth from contraction. The data showed that the slowdown was led by services, while manufacturing held up better. At the same time, firms reported a renewed surge in cost pressures and faster increases in selling prices.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said the March PMI indicated the euro zone economy had already been hit hard by the conflict. The survey also pointed to weakening employment and a drop in confidence, raising questions about near-term hiring and investment plans.

The headline PMI reading and what it means

The S&P Global euro zone Composite PMI slipped to 50.7 in March from 51.9 in February, while staying above the 50.0 threshold that signals expansion. The figure was also slightly above an earlier preliminary estimate of 50.5. Separately, flash PMI reporting cited a composite PMI print of 50.5 for March, described as the weakest reading in ten months.

Even with the index still marginally above 50, the fall matters because it signals that growth is close to stalling. Survey commentary highlighted that the improvement seen earlier in the year had been undermined by surging energy prices, disrupted supply chains and a renewed slowdown in demand.

New orders turn negative after months of recovery

A key warning sign in the March survey was demand. New business declined in March after improving steadily since July, and was described as falling for the first time in eight months. Weaker demand for services was cited as a main driver.

External demand also remained under pressure. Export orders fell again, and international services demand recorded its steepest drop in six months. The combination of softer domestic demand and renewed weakness in exports added to concerns that the slowdown could persist if the supply shock continues.

Services slow to near-stagnation while manufacturing holds up

The survey showed a widening gap between services and manufacturing. Services activity “barely rose,” with the services business activity index sliding to 50.2 in March from 51.9 in February, the weakest reading in 10 months. Another PMI update described the services PMI dropping from 51.9 to 50.1.

Manufacturing output, by contrast, was described as remaining solid, and the manufacturing output PMI was reported as broadly stable at 51.7 compared with 51.9 in February. Some commentary suggested firms may have temporarily frontloaded purchases to avoid potential supply disruptions, supporting output in the short term.

Country picture: Spain leads, France and Italy contract

Among the major economies, Spain was described as leading growth. France and Italy were reported to be in contraction, while Germany’s expansion slowed to its weakest pace so far this year.

More detailed flash PMI figures highlighted France as a particular weak point. France’s composite PMI was reported at 48.3 in March, a five-month low and back in contraction territory. Manufacturing output in France was cited at 48.5 and services activity at 48.3, with the services sector posting its fastest decline since October 2025.

Inflation pressures surge, pushing up selling prices

Cost pressures accelerated sharply in the March survey. Input cost inflation rose to its highest in slightly more than three years, and manufacturing saw a record one-month jump in input costs. The rise was attributed to soaring energy prices and supply chain disruption, with references to freight disruption and shipping risks around the Strait of Hormuz.

Firms raised prices charged to customers at the fastest pace since February 2024, although the increase was described as more modest than the spike in their own costs. This gap suggests a renewed squeeze on margins for some businesses, especially where passing through costs is difficult.

Inflation in official data was also moving higher. Headline inflation in the bloc jumped to 2.5% from 1.9%, above the European Central Bank’s 2% target, as soaring oil and gas prices intensified the policy dilemma.

Jobs and confidence weaken as uncertainty builds

The March PMI pointed to a deterioration in business confidence alongside the slowdown in activity. Employment declined and business confidence dropped, prompting concerns about future hiring and investment.

Survey commentary also highlighted that supplier delivery times lengthened, reinforcing the sense that the shock was affecting operations, not just prices. Businesses were described as “much less optimistic” in March compared with earlier in the year, when optimism had been stronger.

ECB policy dilemma: balancing growth risks and inflation risks

The PMI data placed the ECB in a difficult position because inflation is being pushed up by a supply shock at the same time growth is slowing. One survey estimate put the signal for first-quarter GDP growth at 0.2%, with a risk of contraction this quarter unless the Middle East conflict is resolved swiftly. Another set of survey commentary said the data were consistent with eurozone GDP growth slowing to a quarterly rate of just below 0.1% in the first quarter.

The broader ECB narrative in the provided material emphasised uncertainty around second-round effects. The ECB held its key rate at 2% on March 19 and warned the conflict creates upside risks for inflation and downside risks for growth. Staff projections cited in the text included headline inflation averaging 2.6% in 2026, with alternative scenarios suggesting inflation could rise to 3.5% in 2026 under prolonged disruption and as high as 4.4% in a severe scenario.

Market moves and near-term watchpoints

The material also pointed to rising market sensitivity to the inflation-growth trade-off. European equities were reported to have fallen sharply on March 19, with the STOXX Europe 600 down almost 3%. The euro was reported to be about a third of a percent firmer at $1.1478.

Markets were described as pricing two rate hikes by December. The next key policy checkpoint mentioned was the ECB’s June meeting, which will assess whether war-induced supply shocks risk triggering broader wage and price dynamics.

Key numbers at a glance

Conclusion

March PMI data showed the eurozone economy losing momentum as the Middle East conflict pushed energy costs higher and disrupted supply chains. Demand weakened, particularly in services, while manufacturing was more resilient for now. At the same time, input costs and selling prices rose faster, with inflation in official data moving to 2.5% from 1.9%.

The next signals for investors will come from subsequent PMI releases, inflation prints, and the ECB’s June meeting, where policymakers are expected to assess whether the supply shock is creating more persistent price pressures amid slowing growth.