According to the report from IHS Markit, Eurozone business activity returned to growth in March, fueled by a survey record increase in manufacturing output as global demand continued to revive from the pandemic. The service sector was again hit by virus-related restrictions, though even here the decline was the weakest since last August. Hiring picked up as firms boosted capacity in line with fuller order books and optimism about the year ahead. Sentiment was tarnished, however, by concerns over rising virus infection rates. March also saw firms’ costs rise at the fastest rate for a decade, pushing prices charged for both goods and services higher during the month. Goods prices rose especially markedly, posting the largest rise for almost ten years, often linked to suppliers hiking prices amid record supply chain delays as shortages worsened.

The headline Eurozone Composite PMI rose from 48.8 in February to 52.5 in March. By rising above 50.0, the latest reading indicated the first increase in business activity since last September, with the current expansion the largest recorded since last July and the second-steepest seen over the past 28 months.

While manufacturing output growth accelerated sharply to the highest since data were first available in 1997, the service sector continued to be constrained by the coronavirus disease 2019 (COVID-19) pandemic, with social distancing restrictions leading to a seventh successive monthly fall in business activity. The rate of contraction in the service sector nevertheless moderated to the slowest seen over this period, thanks to spill-over benefits from strong manufacturing growth, a modest easing of virus containment measures and encouraging prospects for the year ahead.