The eurozone private sector economy reported its weakest growth for nine months in March, amid growing cost pressures, according to the latest S&P Global Eurozone PMI survey.
As it noted, the eurozone Composite Output Index fell from 51.9 in February to 50.7 in March, signalling a significant slowdown in private sector expansion – and marking the lowest level of activity since June 2025, reflecting growing pressures on both demand and costs across the region.
“March’s PMI indicates that the eurozone economy has already been hit hard by the war in the Middle East,” commented Chris Williamson, chief business economist at S&P Global Market Intelligence. “The encouraging signs of growth seen earlier in the year have been eradicated thanks to surging energy prices, choked supply chains, financial market volatility and a renewed downturn in demand. The accompanying surge in prices raises the unwelcome spectre of stagflation, or worse, in the near-term.”
Sector slowdown
The slowdown was primarily driven by the services sector, with the Services PMI Business Activity Index declining to 50.2, its lowest level in ten months. This represents only a marginal increase in activity and follows a renewed decline in new orders for services.
Manufacturing, on the other hand, continued to expand at a solid pace, partially offsetting the overall slowdown, although export orders for international services fell.
On a country-by-country basis, the pace of growth across Europe was uneven, with Spain the fastest-growing eurozone economy in March, followed by Ireland. Germany, the eurozone’s largest economy, continued to expand, but at the slowest rate seen so far this year. Meanwhile, both France and Italy saw contractions in activity, highlighting the divergence in economic performance across the region.
Cost pressures also intensified sharply during the month, with input prices surging at their fastest rate in over three years. While companies were able to pass on only a portion of these increases to their customers, output prices rose, recording the strongest overall increase in eurozone goods and services since February 2024.
Economy contraction
“The near-stalling of growth in March drags the PMI’s signal for first quarter GDP growth down to 0.2%,” Williamson added. “More worrying is that there are clear risks of the economy contracting in the second quarter unless there is a swift resolution to the conflict, and even then we will likely see damaging energy market repercussions extending into the coming months.
“New orders inflows have fallen in March for the first time since last July, though the squeeze on spending from the rising cost of living is likely only just beginning. Widespread reports of supply bottlenecks arising from the war raise the risk of growth being constrained further and pressure on prices intensifying. Higher prices have also raised the prospect of interest rate hikes, with the European Central Bank taking a hawkish tilt to prevent these near-term inflationary pressures from becoming engrained.”
As a result, he added business optimism has “slumped”, a situation that has already hit employment markets, and is also likely to dampen business investment.
“In this environment, it is likely that we will see increasing numbers of economic forecasters also revise their growth expectations lower for 2026 and maybe even pencil in a contraction of GDP in the coming quarter,” said Williamson. Read more here.
