Eurozone growth is losing momentum rapidly, with March PMI data pointing to rising risks of GDP contraction in the second quarter as the Middle East war feeds through the economy. PMI Services was finalized at 50.2 in March, down from February’s 51.9, a 10-month low. PMI Composite slipped from 51.9 to 50.7, a 9-month low.
The data suggests that the modest recovery seen earlier this year has been effectively erased. According to Chris Williamson, the economy has already been “hit hard” by surging energy prices, supply chain disruptions, and financial market volatility, all of which are now weighing on activity and demand.
A key warning sign is the deterioration in forward-looking indicators. New orders fell in March for the first time since last July. At the same time, supply bottlenecks linked to the conflict are constraining output while pushing prices higher. This combination is reinforcing stagflation risks. The prospect of a more hawkish response from the European Central Bank to prevent inflation from is becoming entrenched.
The outlook is deteriorating quickly. PMI data now points to only around 0.2% GDP growth in Q1, with clear signals that the economy could contract in Q2 without a swift resolution to the conflict.
