• PMI shows `renewed signs of life' in region, says Markit
  • Terror attacks in Brussels may undermine consumer confidence

The euro-area economy showed signs of strengthening in March and confidence rose as the region tried to put a turbulent start to the year behind it.

A gauge of factory and services activity in the 19-nation currency bloc unexpectedly rose this month, with a similar indicator for France indicating a return to expansion after a contraction in February. In Germany, business and investor confidence gauges also improved, reversing the recent downward trend in Europe’s largest economy.

Economic resilience may be on the mend after an equity rout at the beginning of the year cast doubt over the bloc’s fragile recovery. Nevertheless, weak links remain, with German manufacturing barely growing and prices in the euro area falling. Tuesday’s terrorist attacks at the airport and metro system in Brussels may also challenge the outlook by further undermining consumer and business sentiment.

“Today’s economic news flow in the euro area was encouraging after the dent seen in the first two months of this year,” said Johannes Gareis, an economist at Natixis SA in Frankfurt. “The Brussels attacks could have a impact on the economy due to fearful consumers but, drawing on the Paris attacks, that could be transitory.”

At least 26 people are reported dead and many more injured after explosions ripped through the Belgian capital’s airport departure hall and a downtown subway station. While the terrorist attacks that killed 130 people in Paris last November hurt spending and tourism, the latest data show shoppers are returning.

PMI Pickup

A composite Purchasing Managers Index of euro-area manufacturing and services rose to a three-month high of 53.7 in March from 53 in February, Markit Economics said on Tuesday. That’s well above the 50 level that separates expansion from contraction and exceeded economists’ forecast for a reading of 53.

While the report suggests that the region’s economic recovery is continuing, it also highlighted weak inflation pressures, with output prices falling again this month. An index of services also rose to a three-month high and the manufacturing gauge improved.

Chris Williamson, chief economist at Markit, said the euro zone “saw renewed signs of life at the start of spring.”

“Plenty of worrying signs persist, however,” he said. “Deflationary pressures also remain stubbornly widespread as a lack of demand led to further discounting.”

ECB Stimulus

The European Central Bank announced new stimulus measures this month, including corporate-bond purchases and long-term loans to banks at rates that could be as low as minus 0.4 percent, as part of its bid to lift inflation in the currency zone.

In Germany, there was a mixed batch of data, with an improvement in Markit’s services index offset by a weaker factory reading. On the positive side, sentiment indicators picked up after months of declines, in a sign that strong domestic demand is shielding companies from uncertainty about global growth.

Business confidence, as measured by the Munich-based Ifo institute, improved for the first time in four months, climbing to 106.7 in March from 105.7. The ZEW Center for European Economic Research’s index of investor sentiment rebounded from a 16-month low.

“Domestic factors have stabilized and can partially compensate for the slowing growth of the global economy,” said Henning Voepel, head of the Hamburg Institute of International Economics. “Our expectation is that moderate growth will continue, without any further weakening despite the high level of risk.”

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