Eurozone Manufacturing Rebounds as Services Slow—Key ECB and Trading Signals Emerge

Eurozone Manufacturing PMI Rebounds Sharply While Services Lose Steam

Eurozone PMI data for March pointed to a notable turnaround in the region’s manufacturing sector, which returned to expansion for the first time in two years. The Flash Manufacturing PMI rose to 48.7, a 26-month high, while the Output Index hit 50.7, the strongest level since May 2022. In contrast, services activity slowed, with the Flash Services PMI easing to 50.4, a four-month low.

Manufacturing Momentum Strengthens

The improvement in manufacturing was driven by stronger output, which rose for the first time since early 2023. The headline Manufacturing PMI’s move closer to the 50 threshold suggests that conditions are stabilizing across the sector, underpinned by softer declines in new orders and employment. German manufacturing outperformed expectations, coming in at 48.3 versus a forecast of 47.1, while French manufacturing rose to 48.9, up from 45.8 and well above forecasts. This regional strength marks a shift in sentiment and suggests a broader recovery may be forming.

Services Sector Slows as Input Costs Moderate

The services sector, while still in expansion, lost momentum in March. The Flash Eurozone Services PMI dipped to 50.4 from 50.6 in February, reflecting subdued new business demand. German services activity underperformed sharply at 50.2 versus a forecast of 52.3, signaling a weakening outlook despite previous strength. France posted a modest gain to 46.6, slightly above expectations but still in contraction. Price pressures in the services sector eased, with slower input cost growth—welcome news for the ECB as it weighs monetary policy decisions.

Inflation Signals and Policy Implications

The slowdown in price growth across both manufacturing and services will likely be seen favorably by ECB doves. Input cost inflation in services moderated, hinting at reduced wage pressures, while selling prices in manufacturing increased for the first time in seven months, driven by moderate input costs and lower energy prices. With inflation trends softening, the central bank may find room to reassess the pace of its rate strategy, though risks such as trade tensions and elevated food prices remain on the radar.

Market Forecast: Bullish Manufacturing Outlook, Cautious on Services

The March PMI data support a cautiously bullish outlook for Eurozone manufacturing as output growth and improving order trends gain traction. However, the services sector presents downside risks, particularly in Germany. Traders should monitor next month’s final PMI releases for confirmation of sustained recovery in manufacturing and potential ECB policy recalibrations.

More Information in our Economic Calendar.