It’s a slight upwards nudge to the initial estimate and a minor improvement in manufacturing activity compared to February. That largely thanks to Germany. That saw production and order growth hold steadier in March but there are some key issues to be concerned about.
The Middle East conflict is stirring up supply-side disruption in the euro area with suppliers’ delivery times lengthening to its greatest extent in over 3.5 years. Meanwhile, input cost inflation also jumped up significantly to its highest in 41 months. These are two material developments that could yet signal weaker conditions moving forward. That especially if the impact of the war is felt for much longer across the global economy.
HCOB notes that:
“The war in the Middle East has already left its mark on
euro area manufacturing. 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.
“The frustrating part is that the manufacturing sector
had been slowly gaining momentum since the start
of 2026, aided by generally muted cost pressures
in recent years which have helped goods producers
keep a lid on their charges. However, we saw some
of the war-driven inflation impulse being passed
straight through to final prices in March, reducing the
eurozone’s competitiveness and this will likely put
demand under renewed pressure.
“While factory production and order growth rates held
steady in March, expansions were tepid. It therefore
might not take too much to bring output and sales
volumes lower, and such a risk clearly rises the longer
the war carries on.”
